Bill Summary
This legislation proposes an amendment to the Internal Revenue Code of 1986, specifically targeting how certain payments to foreign related parties are treated under tax law. The key provision of the bill states that payments made to foreign entities will not be classified as "base erosion payments"—which typically refers to payments that reduce the U.S. tax base—if the following conditions are met:
1. The foreign recipient is subject to an effective foreign income tax rate of at least 15%.
2. The amount paid is also subject to an effective foreign income tax rate of at least 15%.
To determine the effective rate of foreign income tax, the legislation allows for the use of applicable financial statements, with potential adjustments for specific financial items as outlined by the Secretary of the Treasury.
Additionally, the bill mandates the establishment of regulations to clarify procedures for determining foreign tax rates and to prevent tax avoidance or abuse in transactions between related parties.
The amendments will take effect for taxable years beginning after the bill is enacted. This change aims to provide clarity and fairness in how U.S. tax laws apply to international transactions, especially in relation to foreign taxes already paid.
Possible Impacts
The legislation outlined in the bill can have several implications for different groups of people, including businesses, employees, and tax authorities. Here are three examples:
1. **Impact on Multinational Corporations**:
- Multinational corporations that have foreign subsidiaries or related parties may benefit from this legislation, as it allows them to avoid having certain payments to foreign related parties classified as base erosion payments, provided those payments are subject to a minimum effective foreign tax rate of 15%. This can lead to reduced tax liabilities for these corporations, allowing them to allocate more resources toward growth, innovation, or employee compensation. However, this could also raise concerns about whether such corporations are paying their fair share of taxes domestically.
2. **Effect on Employees and Wages**:
- If multinational corporations save money on their tax bills due to the provisions of this legislation, they may choose to reinvest those savings into their workforce. This could manifest as increased wages, enhanced employee benefits, or funding for training and development programs. Conversely, if companies do not pass on these tax savings to employees, there could be frustration among workers, especially if they see their companies benefiting while their wages remain stagnant.
3. **Increased Scrutiny from Tax Authorities**:
- The legislation includes provisions for the Secretary to establish rules to prevent tax avoidance or abuse. This means that tax authorities may need to invest more resources in monitoring and enforcing compliance with the new regulations. As a result, businesses engaging in international transactions may face increased scrutiny, which could lead to higher compliance costs or the need for more rigorous accounting practices. This added burden may disproportionately affect smaller businesses that lack the resources to navigate complex tax regulations compared to larger corporations.
[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1911 Introduced in House (IH)]
<DOC>
119th CONGRESS
1st Session
H. R. 1911
To amend the Internal Revenue Code of 1986 to provide that certain
payments to foreign related parties subject to sufficient foreign tax
are not treated as base erosion payments.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
March 6, 2025
Mr. Conaway (for himself, Mr. Suozzi, and Mr. Van Drew) introduced the
following bill; which was referred to the Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide that certain
payments to foreign related parties subject to sufficient foreign tax
are not treated as base erosion payments.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. CERTAIN PAYMENTS TO FOREIGN RELATED PARTIES SUBJECT TO
SUFFICIENT FOREIGN TAX NOT TREATED AS BASE EROSION
PAYMENTS.
(a) In General.--Section 59A of the Internal Revenue Code of 1986
is amended by redesignating subsection (i) as subsection (j) and by
inserting after subsection (h) the following new subsection:
``(i) Certain Payments to Foreign Related Parties Subject to
Sufficient Foreign Tax Not Treated as Base Erosion Payments.--
``(1) In general.--An amount shall not be treated as a base
erosion payment if the taxpayer establishes to the satisfaction
of the Secretary that--
``(A) the foreign person to whom such amount is
paid or incurred is subject to an effective rate of
foreign income tax of at least 15 percent, and
``(B) such amount is subject to an effective rate
of foreign income tax of at least 15 percent.
``(2) Determination of effective rate on basis of
applicable financial statements.--Except as otherwise provided
by the Secretary, the effective rate of foreign income tax may
be established on the basis of applicable financial statements
(as defined in section 451(b)(3)) with appropriate adjustments
(as determined by the Secretary) for excluded dividends, net
tax expense, excluded equity gain or loss, included revaluation
method gain or loss, gain or loss from intragroup transfers of
assets and liabilities, asymmetric foreign currency gains or
losses, bribes, illegal payments, large penalties, prior period
errors and changes in accounting methods, accrued pension
expenses, and such other items as the Secretary may provide.
``(3) Foreign income tax.--For purposes of this subsection,
the term ``foreign income taxes'' means any income, war
profits, or excess profits taxes paid or accrued to any foreign
country or to any possession of the United States.''.
(b) Regulations.--Section 59A(j) of such Code, as redesignated by
subsection (a), is amended by striking ``and'' at the end of paragraph
(1), by striking the period at the end of paragraph (2) and inserting
``, and'', and by adding at the end the following new paragraph:
``(3) for the application of subsection (i), including--
``(A) procedures for determining the effective rate
of foreign income tax, and
``(B) rules to the prevent tax avoidance or abuse,
including rules for recharacterizing a transaction or
series of transactions among related parties.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
<all>