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1 Daniel Bunn, U.S. Cross-Broader Tax Reform and the Cautionary Tale of GILTI 1 (2021)

handle is hein.taxfoundation/uscsbrtx0001 and id is 1 raw text is: U.S. Cross-border Tax Reform AUAand the Cautionary Tale of GILTI FISCAL Daniel Bunn FACT Vice President of Global Projects No. 749 Feb. 2021 Key Findings The U.S. joined many other developed nations in adopting territorial provisions and anti-base erosion rules as part of the 2017 tax reform. One major piece of that reform, that is not typical in other territorial systems, is a new definition of currently taxable foreign earnings, Global Intangible Low Tax Income (GILTI), which is taxed at an effective rate of 13.125 percent, with the rate set to increase after 2025 to 16.4 percent. Recent research has shown that foreign earnings of U.S. companies remain taxed at similar rates even after the 2017 reforms, implying that while the structure of U.S. taxes on foreign earnings changed, the overall burden did not. Interactions between existing law and GILTI mean that GILTI targets low-tax earnings while unintentionally placing a higher burden on foreign earnings that already face high levels of taxation. Changes embedded in the 2017 tax law and proposed by President Biden during the 2020 campaign and by Senate Democrats would increase the tax burden on GILTI for U.S. companies. Policymakers should consider ways to ensure the design of GILTI matches its The Tax Foundation is the nation's purpose as a backstop to a limited territorial tax system, rather than use it as a reseaig inization picy template for returning the U.S. to an uncompetitive worldwide tax system. our research, analysis, and experts have informed smarter tax policy at the federal, state, and global levels. We are a 501(c)(3) nonprofit organization. ©2021 Tax Foundation Distributed under Creative Commons CC-BY-NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org