TAX TAKE: The Treasury Department Greenbook: Initial Observations
The Treasury Department released its long-awaited "General Explanations of the Administration's Fiscal Year 2022 Revenue Proposals" (the so-called "Greenbook"). This is the first Greenbook since the Obama Administration released one in connection with the Fiscal Year 2017 budget. Although the FY 2022 Greenbook proposals largely track the prior proposals advanced by the Biden Administration in the American Jobs Plan (which includes the Made In America Tax Plan) and the American Families Plan, there are a number of initial items of interest to highlight:
- Although the proposed capital gains tax increase would be retroactive to the "date of announcement" (presumably the April 28, 2021 announcement date of the American Families Plan), the majority of the tax increases have a proposed prospective effective date of taxable years beginning after December 31, 2021 (with certain select provisions effective as of date of enactment).
- Despite recent public statements by President Biden suggesting receptivity to a smaller corporate rate increase, the Greenbook maintained the Administration's proposal to increase the corporate rate to 28 percent for taxable years beginning after December 31, 2021. For non-calendar year taxpayers, for tax years beginning after January 1, 2021 and before January 1, 2022, the tax rate would be 21 percent plus 7 percent multiplied by the portion of the tax year that falls within 2022.
- The Administration targets the revenue generated from the repeal of the foreign-derived intangible income (FDII) deduction "to incentivize R&D in the United States directly and more effectively," but does not provide any detail regarding the form of such incentives, although repeal (or delay) of the pending five-year R&D amortization requirement beginning in 2022 certainly may be contemplated in this context.
- The Greenbook also provides more detail regarding a number of new proposals, including the Stopping Harmful Inversions and Ending Low-Tax Developments (SHIELD) rule and the 15 percent minimum book income tax. With respect to the SHIELD, the provision applies to domestic corporations and domestic branches, and the complicated rules contemplate denying deductions (either in whole or in part) based on payments made to not only low-taxed affiliates but high-taxed ones, as well. With respect to the 15 percent minimum book income tax, the proposal clarifies that general business credits and foreign tax credits reduce the "worldwide pre-tax book income" subject to the tax and that minimum tax liability can be carried over (i.e., taxpayers would be allowed to claim a book tax credit against regular tax in future years but the credit cannot reduce regular tax liability below the book tentative minimum tax in that year).
- Finally, the Greenbook proposes not only the repeal of the high-tax exception under subpart F, but also the repeal of the global intangible low-taxed income (GILTI) high-tax exclusion that is incorporated into the regulations. Of course, this is a departure from what the Senate Finance Committee has proposed whereby the high-tax exclusion under the GILTI regime might be converted from an election to a mandatory rule, and calculating the GILTI inclusion based on the remaining CFCs in low-tax jurisdictions on a country-by-country basis.
It is also important to keep in mind that the Greenbook only represents proposals by the Administration and that Congress will have the "final word" since they will have to act on these proposals in order for them to become law. Taxpayers would be well advised to examine what has been proposed as soon as possible, seek additional details that would facilitate determining the financial impact of the proposals, and determine an appropriate advocacy strategy based on such impact. #TaxTake
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