Tax attorney Joshua Odintz was recently quoted in a Bloomberg Tax article regarding the proposed “revenge tax” by the U.S. Congress. The legislation, which includes bills in both the House and Senate, features Section 899 provisions that aim to increase taxes on foreign-owned companies. This would be achieved through higher rates and an expanded application of the base erosion and anti-abuse (BEAT) tax. The bills specifically target the undertaxed profits rule (UTPR) and digital services tax (DST).
The Senate’s version of the bill distinguishes between UTPR and DST, describing UTPR as “extraterritorial” and DST as “discriminatory.” According to this version, rate increases apply only to foreign taxes considered extraterritorial, while a “super BEAT” tax applies to foreign taxes deemed either extraterritorial or discriminatory. Consequently, businesses whose parent companies impose a UTPR would face both rate increases and an expanded BEAT tax.
Joshua Odintz explained why lawmakers might have opted for harsher measures against the UTPR: “DSTs are bilateral issues, and some countries have exited their DSTs or put them on hold,” he said. “Whereas, the UTPR, that is the real sin that Senate Finance and Ways and Means are going after. So perhaps that, that is the reason for why they put a greater penalty on UTPR.”