Businesses Seek Senate Tax Sweeteners on Foreign-Earned Income

Multinational companies, which won preservation of major foreign-income tax provisions in the mammoth House-passed tax bill this week, are looking to the Senate for changes that would lower their tax liability further.

Business interests cheered that current tax rates on foreign income are largely the same as those from the 2017 GOP tax overhaul and are made permanent in the House bill. But they want to see the Senate include legislation introduced by Sen. Thom Tillis (R-N.C.) that would expand tax benefits on income earned abroad.

“On the international tax provisions, I think there’s a real interest in the Tillis bill becoming law,” said Josh Odintz, a partner at Holland & Knight LLP.

Tillis’s bill would expand the deduction for income made from intellectual property repatriated to the US and eliminate limitations on companies’ ability to use foreign tax credits in the global intangible low-taxed income, or GILTI, regime.

GILTI, FDII, BEAT Provisions

The 2017 tax law created GILTI, which currently carries an effective tax rate between 10.5% and 13.1%. The law also created a new tax rate on foreign-derived intangible income, or FDII, which is taxed at an effective rate of 13.1%, and a 10% base erosion and anti-abuse tax, or BEAT, designed to deter profit shifting out of the US.

In the final version of the bill this week, House Republicans made permanent but slightly decreased the deductions available under GILTI and FDII, ultimately increasing each provision’s effective tax rates.

The FDII deduction was reduced to 36.5% from 37.5%, and the GILTI deduction changed to 49.2% from 50%. The BEAT rate increased to 10.1% from 10%.

Despite these small changes, companies applauded that the House bill delivered permanence on rates that are lower than they would have been if Congress hadn’t taken action to retain them. They would have risen appreciably in 2026 under current law.

Still, Justin Metcalfe, international tax director at Forvis Mazars, said companies are keen on a part of the Tillis bill that would create a new Section 966, allowing companies to repatriate their intellectual property to the US tax-free.

The proposal is “revered” by companies that have been trying to achieve the tax-free status of intellectual property transfer for a long time, Metcalfe said.

Jose Murillo, international tax services leader for the Americas at EY, said that companies also want the deduction for FDII to increase, effectively lowering the tax rate on this kind of income, which can include, for example, money made from software developed in the US whose services are then sold overseas.

Retaliatory Measures

Foreign-owned companies in the US are wringing their hands over a House bill provision that would create a new code, Section 899, to increase the rate on foreign-owned companies in the US by 5 percentage points a year up to 20% if their parent country is levying a discriminatory tax against US multinationals.

It would also increase the BEAT tax.

Republicans specifically named digital services taxes, diverted profits taxes, and the undertaxed profits rule—an enforcement mechanism in the OECD’s 15% global minimum tax—as discriminatory levies.

It’s unclear what fate proposed Section 899 will have in the Senate.

Murillo said the Senate cares about maintaining its tax treaties, and this bill would override the cap that treaties put on certain taxes. But lawmakers also don’t like digital services taxes, and they don’t like the global minimum tax, he added.

Watson McLeish, senior vice president of tax policy at the US Chamber of Commerce, said he understands the measure provides a tool the Trump administration could use to negotiate more favorable treatment of US companies at the Organization for Economic Cooperation and Development and elsewhere.

However, he added, his organization is proposing “reasonable tweaks” to senators, like a delayed effective date, that would give countries time to change their tax policies.