As the 2024 presidential election season begins, there are numerous US tax policy changes that are slated to occur at the end of 2025. Internationally, there are also significant shifts in taxation that are poised to add to the legislative agenda. Given these forthcoming developments, it is crucial for taxpayers to begin evaluating potential outcomes and engage in these issues early. In particular, here are a few tax policy areas that demand attention.
On the international front, the global base erosion and profit shifting project, which aims to address the tax challenges arising from the digitization of economies, is set to overhaul tax compliance and requirements. This will notably increase the complexity for multinational entities. Individual countries are expected to implement the global minimum tax rules developed under Pillar Two of the BEPS 2.0 project as soon as 2024. The extent to which the US might ultimately adapt its domestic tax law to Pillar Two remains uncertain. However, if the adoption of Pillar Two becomes more widespread in other countries, large US multinationals will be significantly impacted in terms of increased foreign tax liability and administrative challenges.
The US Internal Revenue Service (IRS) recently announced its intention to issue proposed regulations related to the treatment of foreign taxes paid under the Pillar Two qualified domestic minimum top-up tax (QDMTT) or an income inclusion rule (IIR). Generally, a credit will be allowed for a QDMTT, but if the IIR tax is allowed for a credit depends on the terms of the relevant foreign tax law. The IRS is likely to receive a wealth of public comments on this proposal, which may influence the final guidance on these issues.
Moreover, multinationals must prepare themselves for changes to US international tax policies that are due to take effect at the end of 2025 under the Tax Cuts and Jobs Act. These changes include an increase to global intangible low-taxed income and base erosion and anti-abuse tax rates, and a reduction to the allowed deduction on foreign-derived intangible income. If these scheduled changes do take effect, US multinationals may be subject to increased US tax liability.
Domestically, one must watch out for potential modifications of some tax-and-climate law ‘pre-cliff’ provisions that are currently in effect. These include addressing a shift to Section 174 of the tax code and changes to the interest deduction limitation calculations under Section 163(j).
As these shifts in US tax laws are expected at the end of 2025, and considering potential policy proposals during the 2024 presidential campaign season, it is imperative for companies to monitor legislation, engage with policymakers on the issues, prepare for possible changes, and start formulating responses now.
The views and opinions presented in this article is that of Kevin Flynn, EY Americas vice chair of tax and may not necessarily reflect the views of Ernst & Young LLP or any other member firm of the global EY organization.
Kevin Flynn is EY Americas Vice Chair of Tax. The original article can be found here.