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May 28, 2021

FIRST IMPRESSIONS | Treasury Green Book offers new details on international tax proposals

Today, the Treasury released its FY 2022 explanation of the Biden Administration's revenue proposals (the Green Book), offering new details on the various proposals included in the President's "Made in America" tax plan.

The Made in America tax plan was first released in March (see Breaking Tax News 2021-9005) and followed by a Treasury report detailing the Administration's corporate tax proposals, including increasing the corporate tax rate from 21% to 28% and significant changes to international tax provisions (see Tax Alert 2021-0722). The significant international tax proposals include:

  • Increased tax rates and other changes to the regime for global intangible low-taxed income (GILTI)
  • Country-by-country limitations on foreign tax credits
  • Repeal of the deduction for foreign-derived intangible income (FDII)
  • Replacement of the base erosion and anti-abuse tax (BEAT) with a newly proposed "SHIELD" (Stopping Harmful Inversions and Ending Low-tax Developments)
  • Expanded rules targeting inversions
  • A new minimum tax on book income
  • Limits on interest deductions for disproportionate borrowing in the US
  • Treatment of dispositions of "specified hybrid entities" as stock sales for certain purposes

Most of the proposals would be effective for tax years beginning after December 31, 2021, though several are proposed to be effective for transactions completed after the date of enactment. The proposal to repeal BEAT and introduce SHIELD would be effective for tax years beginning after December 31, 2022.

In this Alert, EY shares its first impressions of the Green Book proposal.

GILTI/Subpart F

The Made in America tax plan would increase the tax rate on GILTI from 10.5% to 21% by reducing the IRC Section 250 deduction to 25% from 50%. Furthermore, the plan would eliminate the exemption from GILTI of a net deemed tangible income return (qualified business asset investment), currently equal to 10% of a US shareholder's share of CFC adjusted basis in qualified business asset investments.

The Green Book would repeal the high tax exception for both GILTI and subpart F. It would also repeal IRC Section 904(b)(4) (which affects the treatment of deductions allocated to income exempted under IRC Section 245A for purposes of the foreign tax credit (FTC) limitation). Instead, it would expand IRC Section 265 to disallow deductions allocable to foreign gross income that is exempt from tax (such as income eligible for a dividends-received deduction under IRC Section 245A) or foreign gross income subject to a lower rate through a deduction (such as an IRC Section 250 deduction on GILTI).

Country-by-country FTC limitation

The Green Book would determine a US shareholder's GILTI inclusion and FTC limitation on a country-by-country basis, thus preventing excess foreign tax credits from high-tax jurisdictions from being credited against GILTI inclusions from low-tax jurisdictions. The Green Book would also expand the country-by-country limitation to branch income.

For a foreign parented controlled group, the Green Book would allow US shareholders to take into account taxes paid by a foreign parent under an income inclusion rule that is consistent with an OECD/Inclusive Framework Pillar Two agreement if a consensus is reached at the OECD. It is unclear whether the foreign parent's taxes would be taken into account as deemed paid credits, or whether the income subject to foreign-parent taxation would be excluded from tested income.

FDII and Jobs incentives

The Green Book would repeal the FDII deduction and replace it with tax-based incentives for research and development (R&D) in the United States. No details are provided on how domestic R&D would be incentivized under the Green Book proposal, though the budget scoring indicates new incentives would match the revenue raised by eliminating FDII.

In lieu of FDII, the Green Book proposes to create a new 10% general business credit for eligible expenses incurred in connection with onshoring to the US a trade or business that is currently conducted outside the US. Conversely, the Green Book would disallow deductions for expenses paid or incurred at the US or CFC level in connection with offshoring a US trade or business if the offshoring would result in a loss of US jobs.

Replacement of BEAT with SHIELD

The Made in America tax plan would repeal the BEAT and replace it with SHIELD. SHIELD would deny deductions "by reference to all gross payments that are made (or deemed made)" to related entities whose income is subject to a low effective rate of tax (ETR). The threshold rate of tax for disallowance would be the GILTI rate of 21% until the adoption of a multilateral agreement on global minimum tax rates under the OECD's BEPS initiative. According to press reports, Treasury proposed on May 20 that the global minimum tax rate should be at least 15% and that discussions should continue to push that rate higher. The Green Book provides these additional details on SHIELD:

  • ETR is determined based on (1) income earned (in the aggregate, taking into account both related and unrelated party income), and (2) taxes paid or accrued with respect to income that is earned in that jurisdiction. Both income earned and taxes paid or accrued are based on separate or disaggregated financial statements on a country-by-country basis.
  • Treasury could provide special rules to address differences (both permanent and temporary) between the relevant income tax base and the base as determined under financial accounting. It could also provide rules to account for net operating losses in a jurisdiction.
  • Deductible payments made by a domestic corporation or branch directly to low-tax members would be subject to the SHIELD rule in their entirety. Payments for other types of costs (such as cost of goods sold), as well as other deductions (including unrelated-party deductions), would be disallowed up to the amount of the payment.
  • Payments made to non-low-tax members would be partially subject to the SHIELD rule to the extent that other group members are subject to an ETR below the designated minimum tax rate in any jurisdiction.

SHIELD would apply to financial reporting groups with greater than $500 million in global annual revenues, although Treasury could exempt payments to domestic and foreign members that are investment funds, pension funds, international organizations, or non-profit entities, and take into account payments by partnerships.

Anti-inversion /IRC 7874

The Green Book proposal would modify current inversion rules by generally treating a foreign acquiring corporation as a US company based on a reduced 50% continuing ownership threshold (instead of 80%).

The Green Book proposal would also expand the inversion rules to apply regardless of the level of shareholder continuity if:

(1) The fair market value of the domestic entity is greater than the fair market value of the foreign acquiring corporation immediately before the acquisition

(2) The expanded affiliated group is primarily managed and controlled in the United States after the acquisition

(3) The expanded affiliated group does not conduct substantial business activities in the country in which the foreign acquiring corporation is created or organized

The proposal would expand the scope of acquisitions covered by the inversion rules and also cover certain distributions of foreign corporation stock by a domestic corporation or a partnership. The expansion of the inversion rules would be effective for transactions that are completed after the date of enactment.

Minimum book tax

The Made in America tax plan would introduce a minimum book tax on certain large multinational corporations. According to the Green Book, a 15% minimum tax would apply to the company's book income that is generally reported to investors. In-scope companies, those with a calculated base in excess of $2 billion, would make an additional payment to the IRS for the excess of up to 15% on their book income over their regular tax liability. Companies would be given credit for taxes paid above the minimum book-tax threshold in prior years, for book net operating loss deductions, for general business tax credits (including research, clean energy, and housing tax credits) and for foreign tax credits.

Interest limitation for disproportionate borrowing in the US

The Green Book introduces a new limitation on interest deductions that would apply to an entity that is a member of a multinational group preparing consolidated financial statements in accordance with US Generally Accepted Accounting Principles or International Financial Reporting Standards. The provision is similar to IRC Section 163(n), which was proposed, but never enacted, in the run-up to the Tax Cuts and Jobs Act of 2017.

A member's interest deduction would be limited if the member's net interest expense for financial reporting purposes is greater than the member's proportionate share of the financial reporting group's net interest expense reported on the group's consolidated financial statements.

A member of a financial reporting group must first compute its proportionate share of the group net interest expense as reported on the group consolidated financial statements, as follows:

After determining its proportionate share, a member determines its excess financial statement net interest expense, if any, as follows (all amounts are with respect to a group member):

Finally, the amount of the member's interest expense that is disallowed and carried forward for US federal income tax purposes is the member's "excess net interest expense," computed as follows (all amounts are with respect to a group member):

Dispositions of specified hybrid entities

The Green Book would extend the principles of IRC Section 338(h)(16) to the disposition of entities treated as corporations under foreign tax law but as partnerships or disregarded entities for US tax purposes (specified hybrid entities). Consequently, the source and character of any item resulting from a specified hybrid entity disposition would be determined for FTC purposes as if the seller had sold or exchanged stock (determined without regard to IRC Section 1248).


With a closely divided House and an evenly split Senate, the details of the international tax provisions in the Green Book are likely to change during the legislative process, making the prospects for enactment unclear. Nevertheless, the Green Book demonstrates that the Biden Administration is committed to fundamental changes to the international tax rules and to aligning key proposals such as SHIELD to the OECD Pillar Two proposals. By using the key new details in the Green Book, taxpayers can better model the potential impact of the international tax proposals on their planning and operations, although many key design features of these proposals still need to be clarified.


Contact Information
For additional information concerning this Alert, please contact:
International Tax and Transaction Services
   • Craig Hillier (
   • Colleen O'Neill (
   • Martin Milner (
   • Jeshua Wright (