US Senate draft of budget bill tweaks corporate tax provisions

By Doug Connolly, MNE Tax

US Senate Finance Committee Chairman Ron Wyden (D-Ore.) on December 11 unveiled his version of the House’s approved budget bill for consideration in the Senate. The Senate draft revises some corporate tax provisions adopted in the House version of the bill, including the corporate minimum tax and new interest limitation rule.

A press release from Wyden states that the “updated text includes both technical and policy changes, as well as modifications to ensure compliance with Senate budget rules.”

The Senate version largely stays in line with the House bill, which passed that chamber on November 19. The provisions of the House bill reflected a hard-fought compromise between moderates and progressives within the Democratic party, with seemingly little wiggle room left on the main tax provisions. However, while the Senate draft broadly retains those provisions, it makes some tweaks.

For instance, the Senate draft retains the 15% corporate alternative minimum tax on “book income.” However, it adds a carve-out for defined benefit plans, which had been sought by business groups. This new adjustment to financial statement income for purposes of calculating the book tax would join other exemptions already included in the House bill, such as for research and development (R&D) and clean energy credits.

On the other hand, the global minimum tax provisions in the bill, i.e., the global intangible low-taxed income (GILTI) amendments to comply with the OECD global tax pact, are largely consistent with the House bill.

The Senate version of the bill also modifies the proposed new interest deduction limitation for international financial reporting groups. In general, the House bill’s provision would cap US interest deductions based on a ratio of the group’s US-to-global EBITDA (earnings before interest, taxes, depreciation, and amortization). The Senate draft allows for the election of an alternative calculation of reported net interest expense using adjusted bases of assets in lieu of EBITDA.

Regarding timing for passage, Senate Majority Leader Chuck Schumer (D.-N.Y.) has expressed that he wants a vote on the bill by Christmas. However, moderate Joe Manchin (D-W.Va.) – whose vote is essential – has shown reluctance to move the bill quickly. President Biden is expected to meet with Manchin this week.

In addition, the Senate parliamentarian still must weigh in on whether the full range of the bill’s provisions is permitted to be included in the bill under the budget reconciliation process. The Democrats are employing the budget process to avoid needing any Republican votes to pass the bill – as none appear forthcoming. The tax provisions in the bill are less likely to be problematic in the budget process, but changes required for other provisions could slow the bill’s progress.

Although passage by the end of the year remains uncertain, the Senate bill generally retains the House bill’s effective dates. This means that some tax provisions could take effect beginning in January, such as the new excise tax on stock buybacks and amendments to the base erosion and anti-abuse tax (BEAT). Some other provisions are not scheduled to take effect until tax years beginning in 2023 – including the corporate minimum tax, global minimum tax, and interest deduction provisions.