April 15, 2021

Biden Administration's Made in America Tax Plan: Interaction with OECD Inclusive Framework

Part 2: Buckle Up for the Impact on International Tax Reform
Holland & Knight Alert
Alan Winston Granwell | Joshua David Odintz


  • The Made in America Tax Plan contains corporate-related tax increases to pay for the American Jobs Plan. The headline item is the increase of the corporate tax rate from 21 percent to 28 percent. A significant portion of the other increases are related to reforming the current international tax system, by adopting a 21 percent global minimum tax on the foreign profits of U.S. corporations, incentivizing U.S. investment and jobs, and disincentivizing foreign investment/jobs and profit shifting.
  • In an unusual move, the Biden Administration is intertwining its international tax policy agenda with that of the Organization for Economic Cooperation and Development (OECD). To maintain U.S. competitiveness, in view of its proposed U.S. tax increases, the U.S. is actively reengaging with the OECD's Inclusive Framework, urging other countries to adopt robust minimum taxes (Pillar 2) and, if not, to provide disincentives for their noncooperation.
  • It also has been reported that the U.S. has proposed an innovative solution to address the Pillar 1 profit allocation and nexus initiative to resolve the taxation of income generated by the new digital economy. The new approach is to tax only the most profitable multinational groups worldwide in a clear and principled way that reduces compliance and administrative burdens, provides certainty and in a manner not discriminatory against large U.S. corporate technology companies.
  • This Holland & Knight alert provides an overview on the international tax reforms of the Made in America Tax Plan and options proposed by the chairman of the Senate Finance Committee and two other senators, as well as the outreach by the U.S. government to the OECD to reach an international consensus on the international tax architecture of the issues presented in the Pillar 1 and Pillar 2 initiatives.

The American Jobs Plan is a proposal to increase investment in infrastructure, the production of clean energy, the care economy and other priorities. The Made in America Tax Plan (Tax Plan) is the vehicle to pay for the American Jobs Plan. The way the Biden Administration proposes to fund the American Jobs Plan is to increase the corporate tax rate from 21 percent to 28 percent and, with reference to reforms in the international area, modify or repeal a number of the provision of the 2017 Tax Cuts and Jobs Act, viz., strengthen the global minimum tax for U.S. multinational corporations by increasing the rate to 21 percent and making other adjustments, incentivize U.S. investment and jobs, and disincentivize foreign investment/jobs and profit shifting.1 (See Holland & Knight's previous alert, "Biden Administration's Made in America Tax Plan: Procedural Aspects," April 8, 2021.) In addition, to maintain U.S. competitiveness and end the race to the bottom on corporate tax rates around the world, the United States, under the Tax Plan, also will seek global consensus on a robust minimum tax through a multilateral outreach and provide disincentives for noncooperation.

The Tax Plan is informed by the following principles: 1) collect sufficient revenue to raise needed revenue to fund critical investments; 2) build a fairer tax system that rewards labor; 3) reduce profit shifting and eliminate incentives to offshore investment and jobs; 4) end the race to the bottom around the world and level the playing field between foreign and U.S. companies; 5) require all corporations to pay their fair share; and 6) build a resilient economy to compete.2

In sum, the proposed reformed corporate tax plan is intended to maintain U.S. competitiveness while protecting the corporate tax base, so as to encourage American investment and job creation that will benefit American families and result in economic growth, international cooperation and a more equitable society.3

Multilateral Engagement

The drafters of the Tax Plan recognize that U.S. tax reform, particularly the increase in the corporate rate and the U.S. taxation of foreign income cannot be considered in a vacuum. Unilateral U.S. tax changes in and of themselves will not end "the race to the bottom" on corporate tax rates or prevent foreign corporations in low tax jurisdictions from eroding the U.S. tax base; unilateral U.S. changes to increase U.S. tax rates also may reinvigorate inversions by U.S. corporations, even under tightened rules.

To deal with these concerns in today's globalized economy, the Biden Administration concluded that multilateral engagement would be necessary to the success of their plan. The intertwining of the U.S. tax reform and multilateral outreach is a specific element of the Tax Plan with respect to encouraging other countries to support adoption of a robust minimum taxes (Pillar 2) to forestall the "race to the bottom" on corporate tax rates.

Treasury Secretary Janet Yellen and other officials of the U.S. Department of the Treasury have announced this outreach through confirmation testimony, speeches, op-eds and written communications, and already are engaging with the Group of 20 (G20) and the Organization for Economic Cooperation and Development's (OECD) Inclusive Framework.4

Recognizing that encouraging adoption of a robust global tax may not be in the interest of all countries, the Tax Plan contains an accommodation – the repeal of the unpopular and (in the Biden Administration's view) ineffective BEAT (Base Erosion and Anti-Abuse Tax) – and a "stick," the replacement with the SHIELD (Stopping Harmful Inversions and Ending Low-tax Developments), which, among other provisions, would preclude the deduction of payments to related parties subject to a low effective rate of tax in a foreign jurisdiction, defined by reference to the rate agreed upon in a multilateral agreement. Further, if SHIELD was in effect before such an agreement had been reached, the default rate trigger would be the 21 percent tax rate on the income.

Further, in terms of multilateral engagement, it has been reported5 that the United States also is focusing on seeking a resolution by the Inclusive Framework of Pillar 16 because Pillar 2 is interconnected with Pillar 1. That is, until an international consensus can be reached as to how to reform the international tax system to address the taxation of revenues arising from the digitalization of the economy (Pillar 1), it may not be possible to reach a consensus as to a global minimum tax (Pillar 2).

Based on these reports, a new approach has been floated by the United States. No longer would there be a focus on the automated digital services (ADS) or consumer facing businesses (CFB) sectors (which the U.S. has long argued would discriminate against American firms) and complex rules. Rather, there would be a bright-line approach that would apply only to the most successful global multinational corporate groups (100 companies at most) that satisfy a revenue and profit-margin threshold, without regard to industry.7 The aim of the proposal is to provide a simplified profit allocation and nexus rule targeting only the largest and most profitable multinational groups with the highest profit-shifting potential through clear, principled, administrable rules so as to provide the requisite tax certainty.

Media reports reflect that OECD Tax Chief Pascal Saint-Amans has welcomed the new proposal, other countries have reacted positively to the new proposal, and that the proposal has "rebooted" negotiations.8

Comparison of Options

This alert now turns to the international tax provisions, comparing those in the Made in America Tax Plan, as described by the Treasury Department in its April 2021 release (which provides additional detail and rationale for the Made in America Tax Plan) and those contained in the framework – Overhauling International Taxation – proposed by Democratic Sens. Ron Weyden (D-Ore.), Sherrod Brown (D-Ohio) and Mark Warner (D-Va.) to reform selected portions of the Tax Cuts and Jobs Act (TCJA) international provisions (W/B/W Framework).9

As an initial matter, it is important to note that as a matter of overall tax policy, the W/B/F Framework is in synch with the objectives of the Made in America Tax Plan, but has proposed somewhat varying options to reform selected portions of the international tax provisions.

Provided below is a comparison chart of the proposals and along with comment on variances in the selected proposals.



Tax Plan

W/B/W Framework

Corporate Income Tax Rate

28 percent

Not specified






28 percent

Per Country



Options to increase rate

Per Country or High Tax/Low Tax


Add incentive to onshore research and management jobs



Revise, based on "Deemed Innovation Income"

Eliminate QBAI

Equalize rate to GILTI



Replaced by SHIELD

Modify to allow full use of domestic tax credits (and possibly foreign tax credits)

Higher rate on base erosion payments


Treat foreign acquiring company as U.S. company

Lower ownership threshold from 80 percent to 50 percent


Managed and controlled in U.S.

No provision

Global Intangible Low Taxed Income (GILTI)

Current Law: GILTI is the key building block for a quasi-territorial system. A U.S. shareholder treats all of its interests in controlled foreign corporations (CFCs) as effectively one CFC. The return on tangible assets (income up to 10 percent of qualified business asset investment or QBAI) is exempt from U.S. tax, and any returns in excess are treated as GILTI. GILTI is taxed at 10.5 percent, subject to a taxable income limitation, but foreign tax credits in the GILTI basket are subject to a 20 percent haircut, increasing the GILTI tax rate to 13.125 percent. Additionally, GILTI tested loss (overall GILTI loss) and excess GILTI foreign tax credits cannot be carried forward.

Tax Plan: The Treasury Department is concerned that GILTI provides an incentive to offshore plants and profits. To eliminate this incentive, the Treasury Department would 1) increase the GILTI rate to 21 percent (tracking with an increase to the corporate income tax rate to 28 percent), 2) move GILTI from a one CFC system to a country-by-country system, and 3) eliminate the 10 percent return on QBAI.

W/B/W Framework: The senators also believe that GILTI provides an incentive to offshore income. To eliminate the incentive, the senators would increase the GILTI rate, perhaps to 75 percent of the U.S. corporate income tax rate and eliminate the exemption for QBAI.10 Second, the senators would eliminate the ability to offset high-tax and low-tax income by moving GILTI from a one CFC system to a country-by-country system, which would be complex, or a high-tax/low-tax system, based on the GILTI High-Tax Exclusion regulations, to simplify computations. In addition, an incentive would be added for performing research and development (R&D) and locating administration in the United States without adverse foreign tax credit consequences (i.e., by allocating and apportioning all R&D expenses to U.S. source income).

Comments: Arguably, the TCJA created a quasi-territorial system. The changes contemplated by the Tax Plan and senators would move the United States to a worldwide system with different rates, depending on the category of income. The two plans fail to acknowledge this movement, nor do they recognize the number of countries with a full inclusion system (currently, only four members of the OECD have worldwide systems). Moreover, Pillar 2 would impose a top up tax, but does not require countries to move to a worldwide tax system. The U.S. would potentially be an outlier.

GILTI has built in features that are problematic. For example, will the GILTI foreign tax credit basket maintain the 20 percent haircut? In a country-by-country system, can a taxpayer carry forward tested loss? How will revised GILTI interact with the SHIELD, since payments from a U.S. parent to its CFC will be taxed currently?

Foreign Derived Intangible Income (FDII)

Current Law: A companion provision to GILTI, FDII provides a preferential rate (13.125 percent, subject to a taxable income limitation) for certain of a U.S. corporation's export income from sales, services and intangibles. It also contains QBAI-like provisions. The Biden Administration and some in Congress contend that the taxation of the 10 percent return on the QBAI-like provision incentivizes a domestic corporation to offshore manufacturing facilities, as it is taxable at 21 percent; if offshored, it is a beneficial increase for the preferential rate of taxation of FDII in the U.S. and is exempt if the QBAI return is derived by a CFC.

Tax Plan: Repeal FDII because of its incentive to offshore factories.

W/B/W Framework: Either repeal it or structure FDII to drive investment in the U.S. and create innovation. To do so, plan proposes to rename FDII as Foreign Derived Innovation Income. FDII's "deemed intangible income" would be replaced with a new metric, deemed innovation income. Deemed innovation income would be an amount of income equal to a share of expenses for innovation-type activities that occur in the U.S. (e.g., R&D and work training). This should encourage companies to continually innovate as current spending would determine the benefit and the more spent on innovation, the greater the income subject to the preferential rate. The W/B/W Framework also suggests that if FDII were to remain, equalize the final GILTI and FDII rates.

Base Erosion and Anti-Abuse Tax (BEAT)

Current law: The BEAT subjects certain taxpayers11 to a base erosion minimum tax equal to the excess of 10 percent (11 percent for certain financial institutions) of taxable income determined without the benefit of amounts paid or accrued that are deductible from payments to foreign-related parties or includible in the basis of a depreciable or amortizable asset purchased from a foreign-related party, over the regular tax liability reduced by tax credits other than specified tax credits. The BEAT is agnostic as to the effective tax rate of the foreign payee; a deduction paid to a foreign-related party is treated as a base eroding payment, even if the foreign payee's effective tax rate exceeds the U.S. corporate income tax rate.

Tax Plan: The plan recognizes the BEAT was not appropriately designed to address base erosion and has failed to collect the promised revenue, the BEAT would be repealed and replaced with a new provision named the SHIELD (Stopping Harmful Inversions and Ending Low-tax Developments) to protect the U.S. against base erosion. The SHIELD would look to the effective tax rate of the foreign payee, and if the rate were below a specified level, then the deduction would be denied for federal income tax purposes. The effective tax rate would be set in a multilateral agreement.12 If the SHIELD were to be implemented before a multilateral agreement is reached, then the effective tax rate would be the GILTI rate, or possibly 21 percent. It is likely that the Treasury Department is using this leverage to force the OECD Inclusive Framework to reach consensus before the SHIELD becomes law.

W/B/W Framework: The senators would revise the BEAT to allow for the full use of domestic tax credits and possibly foreign tax credits, revenue permitting. The BEAT would have two different rates with a higher rate targeting lower-taxed payments.

Comments: The SHIELD would appear to target rate arbitrage, and, at the same time eliminate, the cliff effect created by the base erosion percentage. It may also eliminate the additional BEAT created by tax credits, which can increase a taxpayer's BEAT liability.

Based on the details, it is unclear if the SHIELD addresses some of the perverse outcomes in the BEAT. For example, a payment from a U.S. corporation to a wholly owned controlled foreign corporation may give rise to Subpart F income. The U.S. corporation includes the payment as Subpart F income, and the BEAT imposes two more levels of taxation by denying the deduction and denying the use of foreign tax credits. Hopefully, the SHIELD would not apply to the payment if the CFC is located in a low-taxed jurisdiction (e.g., a jurisdiction with a 10 percent effective tax rate) because the U.S. corporation would pay U.S. corporate tax on the payment as Subpart F income, with an offsetting deduction.


Current Law: A corporate inversion occurs if a U.S. parent of a multinational group of companies enter into a series of transactions that replaces the U.S. parent with a new foreign parent corporation so as to minimize its exposure to U.S. taxation. Corporate inversions may be accomplished in a variety of ways (e.g., an inversion may occur in a simple exchange of domestic target stock for new foreign parent acquiring stock; a merger of a domestic corporation into a foreign parent; or a transaction involving both domestic and foreign target stock being acquired by a new foreign parent). Under an 80 percent inversion, the new foreign parent is treated as a domestic corporation for all purposes of the U.S. Internal Revenue Code.

Tax Plan: As a backstop to the SHIELD proposal, the anti-inversion provision is strengthened to prevent U.S. corporations for inverting. This would be accomplished by generally treating a foreign-acquiring corporation as a U.S. company based on a reduced 50 percent (rather than 80 percent) continuing ownership threshold or if a foreign-acquiring corporation is managed and controlled in the United States.

W/B/W Framework: No provision. However, Sen. Sanders introduced the Corporate Tax Dodging Prevention Act, which also adopts a 50 percent continuing ownership threshold.

Next Steps

The Made in America Tax Plan is very much a work in progress and has not been reduced to statutory language. The Biden Administration currently is in the process of meeting with Republican and Democratic legislators in order to see if it can reach bipartisan agreement as to the American Jobs Act and how to pay for its proposals. Also, the administration likely will release its American Families Plan soon, which will deal with individual income tax reforms and, in May, the administration is anticipated to publish its fiscal year 2022 budget and additional details on its tax reform proposals in a Treasury Department "Green Book." House Speaker Nancy Pelosi (D-Calif.) has announced that July 4 is the target date for passage of the American Jobs Act. Thus, time will tell whether these tax reform proposals are contained in one or more bills, are bipartisan and can be enacted through "regular order," or whether one or more budget reconciliation bills will be the pathway (assuming that Democrats can garner support of their caucus). As the alert title presages, it is time to "buckle up" for tax changes.

For more information on this topic, listen to our recent podcast about the global changes in tax rates and the United States Trade Representative's plans for working with the OECD under the Biden Administration.


1 Other reforms not discussed herein include 1) enacting a 15 percent minimum tax on book income of large companies that report high profits, but have little taxable income, 2) replacing fossil fuel subsidies with incentives for clean energy production, and 3) increasing enforcement to address corporate tax avoidance.

2 U.S. Department of the Treasury, The Made in America Tax Plan, April 2021, (Treasury Description of Tax Plan) at p. 1-2.

3 Treasury Description of Tax Plan, at p. 17.

4 See Treasury Secretary statement in a speech to the Chicago Council on Global Affairs ("we are working with G-20 nations to agree to a global minimum tax ate that can stop the race to the bottom"), Law360 95-33; Jan Strupczewski, "EU back U.S. call for global minimum corporate tax, but rate to be decided" (Reuters, April 6, 2021), reporting on a call by Treasury Secretary Janet Yellen to the G-20 ministers for a global minimum corporate tax; so as to end a "thirty-year race to the bottom on corporate tax rates"; Op-ed by Treasury Secretary Janet Yellen, "A Better Corporate Tax for America," The Wall Street Journal, April 7, 2021; Alex Parker, "Biden's Bid to Refocus Global Tax Pact Comes With Risk, Law360 99-124 (April 9, 2021).

5 See e.g., James Politi, Aime Williams and Chris Giles, "US offers new plan in global corporate tax talks," Financial Times (April 8, 2021); Paul Hannon and Richard Rubin, "Tax Plan Pitched for Global Firms," The Wall Street Journal, (April 9, 2021); "U.S. Offers Key to Unlock Scope of Issue in Global Tax Reform," Tax Notes (April 9, 2021);William Horobin, Catherine Bosley, Jane Randow, "Global Corporate Taxes Face 'Revolution' After U.S. Shift, Bloomberg Law News (April 9, 2021); Laura Davison, Isabel Gottlieb, Kaustuv Basu, "U.S. Floats Tax Compromise Targeting 100 International Firm," Bloomberg Law News (April 9, 2021).

6 Pillar 1 is a series of proposals to revise the tax allocation and nexus rules arising from high-value residual profits derived by multinational corporations in the automated digital services (ADS) and consumer facing businesses (CFB) to enable jurisdictions (the market jurisdictions) in which the source of revenue arises to tax the in-scope ADS and CFB businesses on such revenues, irrespective of physical presence in the jurisdiction. The current proposals are extremely complex, contentious and raise numerous issues, to include scope/size/segmentation of in-scope businesses, the calculation and amount of the portion of residual profits to be allocated to market/user jurisdiction, portion, double taxation issues administrative and compliance and dispute resolution issues and how to achieve tax certainty.

7 Tax Notes has confirmed that the Treasury Department has proposed a $20 billion revenue threshold, but no profit margin threshold has been floated yet. "U.S. Offers Key to Unlock Scope of Issue in Global Tax Reform," Tax Notes (April 9, 2021).

8 Id.

9 There is no shortage of proposed legislation regarding international reform, and it is possible the tax writing committees will incorporate those proposals. Holland & Knight may revisit proposals in legislation introduced by Sen. Bernie Sanders (I-Vt.) and Rep. Lloyd Doggett (D-Texas) in a future alert.

10 The W/B/W Framework does not specify a GILTI rate.

11 Taxpayers with a base erosion percentage of 3 percent (2 percent for specified financial institutions).

12 Likely through the OECD Inclusive Framework, Pillar 2 work stream.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.

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