The American Institute of CPAs sent a letter to Congress’s tax-writing committees asking lawmakers to reconsider the rules around the corporate minimum tax rate that’s currently part of the reconciliation bill now under consideration.
While many of the tax proposals seem to have been dropped by Democrats from the Build Back Better Act in recent weeks in response to objections from Sen. Joe Manchin, D-Virginia, and Kyrsten Sinema, D-Arizona, the 15% minimum corporate tax rate remains as a way to help pay for the reduced $1.75 trillion social spending and climate package. Instead of raising the corporate income tax rate to 28%, as the Biden administration had earlier proposed, Democrats have gradually been trimming it down, first to 26.5% and now to the 15% minimum tax rate backed by the Organization for Economic Cooperation and Development.
The proposal was reinforced over the weekend when President Biden and other G-20 leaders endorsed the 15% global minimum tax rate, which was agreed to earlier this year by the OECD and finance ministers from the Group of 20 countries, as a way to curb corporate tax avoidance and profit shifting (
However, the proposal still faces objections from Republicans in Congress, whose approval would probably be needed for the Senate to ratify any changes in tax treaties. In the meantime, the AICPA wants more clarity on the actual provisions. Democrats are expected to unveil the formal text of the reconciliation bill this week in hopes of a vote in the House on both that and the $1.2 trillion bipartisan infrastructure bill, although Manchin expressed lingering objections Monday to some of the provisions, which may delay a vote in the Senate and hold up the vote in the House.
The corporate profits minimum tax would be a minimum tax based on 15% of adjusted financial statement (book) income rather than recognized income, the AICPA noted in its letter to leaders of the House Ways and Means Committee and the Senate Finance Committee. The proposed corporate minimum tax would operate much like the corporate alternative minimum tax, which was eliminated by the Tax Cuts and Jobs Act of 2017, requiring corporations to compute their taxes, first on taxable income and then again on book income based on adjusted financial statements that include current value of assets, and pay the higher of the two.
The AICPA argues that imposing taxes according to adjusted financial statement income would take the definition of taxable income out of Congress’s hands and put it in the hands of industry regulators and others. It pointed to some key differences between adjusted financial statement income and taxable income, including the idea of materiality.
The AICPA wants Congress to further consider and clarify the rules associated with the Senate proposal surrounding implementing a minimum tax on corporate book income, as this will likely be complex and have many significant and potentially negative implications.
“Public policy taxation goals should not have a role in influencing accounting standards or the resulting financial reporting,” the AICPA said in its letter. “Independence and objectivity of accounting standards are the backbone of our capital markets system.”
Some accountants have also expressed concerns about some of the earlier proposals from Democrats in terms of raising taxes on taxpayers who earn more than $400,000, many of which have now been dropped as well.
“Those clients that are in the $400,000 to $450,000 range, depending upon whether they’re joint or single, a 2% rate increase is fairly significant, especially given some of these other provisions,” said Brent Lipschultz, a partner in EisnerAmper's Personal Wealth Group, in reaction to earlier proposals from Democrats on the House Ways and Means Committee. “These provisions are essentially additional rate increases because they’re eliminating certain deductions and other things. The qualified small business stock exclusion would go down for certain people that are in certain income ranges. That’s a tax increase. It seems to me like every provision in this bill is representative of a tax increase for individuals.”
Corporate taxes are likely to rise as well under the international agreement.
“The G20’s endorsement of the global minimum rate last weekend is just the starting point, as the key topic is set to become the effective global tax rate,” said Rob Mander, head of international tax services at RSM International. “Perception of equity in the global tax system is crucial. For example, if multinational companies have an effective tax rate of 15-20% while mid-market companies have an effective rate of 25% or more, then the system will still be perceived as inequitable.”
He noted that multinational companies are already changing their structures given that the direction of tax policy has been clear for some time. “Given their size and scale, multinational companies have the resources to restructure, and the OECD reform, now ratified also by the G20, is only a ‘bump in the road,” said Mander. “Some of the bigger issues for multinationals will be more difficult due to their dominant market position. This will transpire with regard to anti-competition laws and community attitudes to their social media dominance, for instance.”
He believes tax competition will remain, but not as we currently know it. “Businesses and individuals have a global vision,” said Mander. “This means countries are in a competitive world as they seek investment capital and skilled people. In turn,competition will transform into more productive assets, such as: incentives to attract entrepreneurial migrants, tax concessions to individuals through wage subsidies or employee share options, R&D and other concessions for the digital economy to invest.”
