S.2021 - Close the Round-Tripping Loophole Act (119th Congress)
Summary
S.2021, the "Close the Round-Tripping Loophole Act," aims to amend the Internal Revenue Code of 1986 to prevent companies from artificially reducing their U.S. tax liability by shifting income to foreign subsidiaries and then bringing it back to the U.S. This is achieved by modifying the calculation of global intangible low-taxed income (GILTI). The bill targets what it defines as 'round-tripped income'.
The bill introduces a 'round-tripping ratio' to reduce the amount of income eligible for preferential tax treatment. It also provides an exception for small taxpayers with average annual gross receipts not exceeding $100 million.
The changes would apply to taxable years of foreign corporations beginning after the enactment date and to taxable years of U.S. shareholders in which or with which those foreign corporation taxable years end.
Expected Effects
The primary effect of this bill would be to increase the tax revenue collected from multinational corporations engaging in round-tripping practices. This would disincentivize such behavior.
It would also simplify tax compliance for smaller businesses by exempting them from the round-tripping ratio calculation. This could lead to a more level playing field for businesses of different sizes.
Ultimately, the bill aims to ensure that companies pay their fair share of taxes on income generated within the U.S.
Potential Benefits
- Increased Tax Revenue: By closing the round-tripping loophole, the government could collect more tax revenue from multinational corporations.
- Fairer Tax System: The bill aims to create a fairer tax system by preventing companies from exploiting loopholes to avoid paying their fair share.
- Level Playing Field: The exception for small taxpayers could help level the playing field by reducing the compliance burden on smaller businesses.
- Discourages Tax Avoidance: The bill disincentivizes companies from engaging in round-tripping practices, which could lead to more investment in the U.S.
- Potential for Increased Domestic Investment: By making it less attractive to shift profits offshore, the bill could encourage companies to invest more in the U.S.
Most Benefited Areas:
Potential Disadvantages
- Increased Complexity: The bill introduces new calculations and definitions, which could increase the complexity of the tax code for some businesses.
- Potential for Unintended Consequences: The bill could have unintended consequences, such as discouraging legitimate international business activities.
- Compliance Costs: Even with the small taxpayer exception, some businesses may face increased compliance costs due to the new rules.
- Risk of Retaliation: Other countries could retaliate by enacting similar measures, which could harm U.S. businesses operating abroad.
- Potential for Economic Impact: Increased taxes on multinational corporations could potentially impact economic growth and job creation, although the extent is uncertain.
Constitutional Alignment
The bill aligns with the constitutional principle of Congress's power to lay and collect taxes, as outlined in Article I, Section 8, Clause 1. It seeks to refine the tax code to ensure that existing laws are applied as intended and to prevent tax avoidance. The bill does not appear to infringe on any specific constitutional rights or protections.
Furthermore, the bill's focus on interstate and international commerce aligns with Congress's power to regulate commerce among the several states and with foreign nations (Article I, Section 8, Clause 3).
By ensuring fair taxation, the bill indirectly promotes the general welfare, as stated in the Preamble of the Constitution.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).