Any time that new legislation is introduced, many companies have questions about how it might impact them and the way that they do business. While the Build Back Better bill did not pass in its most recent form, numerous pieces of it are expected to be implemented over the coming weeks and months. Now is the time to plan for how it might impact the way you do your international taxes.
What International Tax Changes Are Included in the Build Back Better Bill?
- Foreign Derived Intangible Income (FDII): Currently, C corporations are allowed a 37.5% deduction on export sales and services, and this deduction may be reduced almost 10% to 28.5%.
- Global Intangible Low-Taxed Income (GILTI): The Build Back Better bill might decrease the deduction that C corporations currently receive (50%) down to 28.5%. Tax calculations will also be altered so that they are performed on a country-by-country basis. Instead of being globally taxed on controlled foreign corporation taxable income, this bill would divide your deductions and income from countries with high income tax and low income tax.
- Foreign Tax Credits: This would be a new credit that would examine current foreign taxes to see how international companies are getting foreign tax credits. Currently, the income that you earn in lower income tax countries can be used to also calculate the tax credits that you receive from higher income tax companies. The Build Back Better bill would change things so that the foreign taxes you generate in Italy, for example, could only be used against your foreign income in Italy.
- Taxation of Foreign Dividends: In the past, the IRS permitted 100% Dividend Received Deductions for foreign dividends received from 10% owned foreign corporations. As part of the changes to international tax law in the BBB bill, the ownership would increase to 50% owned foreign corporations. As a result, this broadens the taxation pool so that more international companies will be eligible for taxation.
Because these changes could mean massive differences to your tax bill, it’s important to work with your accountant now.
Overcome International Tax Challenges with Help from MKS&H
MKS&H provides tax and accounting services to businesses of every size and in every industry. We can work with you to make international taxes easily and avoid the most common international tax challenges. Contact us today for a consultation.
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.