Treasury Green Book includes Pillar II undertaxed payments rule (UTPR), corporate tax increase rate

On March 28, the Biden Administration released the 2023 Fiscal Year Budget, followed by the release of the Treasury’s Green Book, which provides explanations of the Biden Administration’s revenue proposals. Among the proposals is the adoption of the OECD’s Pillar II undertaxed payments rule (UTPR) in lieu of the Base Erosion Anti-Abuse Tax (BEAT). The UTPR denies a deduction or requires an equivalent adjustment to the extent the income of a constituent entity under the scope of Pillar II’s global minimum tax is taxed under the 15% tax rate threshold.

The proposal would repeal BEAT and replace it with a UTPR that is consistent with the Pillar II Model Rules. When another jurisdiction adopts a UTPR, a domestic minimum top-up tax would protect U.S. revenues from the imposition of UTPR by other countries. The UTPR would apply only to financial reporting groups that have global annual revenue of $850 million or more in at least two of the prior four years.

Further, the Biden Administration proposes to increase the corporate tax rate to 28%, which would consequently increase the GILTI rate. Biden’s budget assumes that the changes to GILTI envisioned by the House’s Build Back Better Act are enacted, making the GILTI effective rate 20%, applied on a jurisdiction-by-jurisdiction basis. Such a change would see the GILTI with a rate higher than the OECD’s Pillar II global minimum tax of 15%.