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BEAT, GILTI Provisions May Change in Upcoming Legislation, Brady Says

POSTED ON Jul. 9, 2018

Problems with international provisions in the new tax law weren’t unexpected given the speed at which the law advanced, but changes are coming, according to the House’s top Republican taxwriter. 

“We threw major changes at the international side. We didn’t have as much time to model and analyze it,” House Ways and Means Committee Chair Kevin Brady, R-Texas, said in a June 29 Fox Business Network interview.

House Republican taxwriters are getting feedback about concerns regarding the international provisions in the Tax Cuts and Jobs Act (P.L. 115-97), and “we’re going to be making those changes, fine-tuning the international side to make sure it hits the mark,” Brady said. 

The TCJA included a substantial overhaul of the country’s international tax system, with provisions including a tax on global intangible low-taxed income (GILTI) and a base erosion and anti-abuse tax (BEAT). Both of those suffer from shortcomings in their implementation, according to former and current executives of large multinational companies. They said Treasury and the IRS might solve some of the issues through regulatory interpretation, but others likely can't be fixed without new legislation.

Congressional Research Service analysts Jane G. Gravelle and Donald J. Marples suggested in a May report potential options to fix the provisions and said the combination of GILTI and other provisions intended to prevent base erosion in the U.S. tax system leaves it unclear whether companies will move more of their capital into the United States from overseas.

Modifications to the TCJA’s international provisions could come in “phase 2” tax legislation and further in the future, Brady said. Brady has said House Republicans will likely review a new tax measure in July.

Phase 2 Filling Up

The phase 2 package has long been expected to focus on extending the TCJA’s temporary tax cuts for individuals and small business owners, and potentially address other issues such as retirement tax policy. But both Brady and President Trump have suggested that the package could take on even more.

Trump, in an interview scheduled to air on the Fox News Channel July 1, said work is underway on a phase 2 tax bill that will do more to help the middle class and could lower the corporate tax rate from 21 to 20 percent. Excerpts of his interview were posted online June 29.

“We’ll be doing it probably in October, maybe a little sooner than that,” Trump said.

However, the plan’s chances in the Senate should it clear the House appear to be uncertain. Senate Majority Leader Mitch McConnell, R-Ky., said a filibuster-proof 60-vote margin — which would require at least nine votes from Senate Democrats — will be needed to advance legislation to make the TCJA’s individual income tax cuts permanent.

The bill would also be competing for time on the legislative agenda — which just got more crowded with Supreme Court Justice Anthony M. Kennedy’s announced retirement

Follow David van den Berg (@TAtaxDavidVDB) on Twitter for real-time updates.