H.R. 1911: To amend the Internal Revenue Code of 1986 to provide that certain payments to foreign related parties subject to sufficient foreign tax are not treated as base erosion payments.

This bill proposes amendments to the Internal Revenue Code of 1986, specifically targeting how certain payments to foreign related parties are treated under U.S. tax law. The main provision is that payments made to foreign entities will not be classified as "base erosion payments" if two criteria are met:

Criteria for Exemption from Base Erosion Payment Classification

• The foreign party receiving the payment must be subject to a foreign income tax rate of at least **15%**.
• The payment itself must also be subject to a foreign income tax rate of at least **15%**.

This means that U.S. taxpayers could potentially avoid additional taxes on payments to foreign affiliates if these payments are sufficiently taxed abroad. The goal of this provision is to reduce the tax burden on U.S. companies that have legitimate business operations and tax obligations in foreign markets.

Determining the Effective Tax Rate

The bill outlines that the effective foreign income tax rate can be verified through applicable financial statements, which may include various adjustments. These adjustments could account for factors such as:

• Excluded dividends and net tax expenses
• Gains or losses from asset revaluations
• Bribes and illegal payments
• Errors and changes in accounting methods

This provision aims to clearly define what counts as foreign income tax, ensuring that firms utilize consistent methods to establish their tax rates.

Regulatory Authority

The bill grants the Secretary of the Treasury the authority to create regulations to enforce this section of the tax code. This includes establishing procedures for determining the effective rate of foreign income tax, as well as creating rules to prevent tax avoidance strategies and abuse. Such rules may involve recharacterizing transactions or series of transactions between related parties.

Effective Date

The changes proposed in this bill would take effect for taxable years that begin after the bill is enacted into law, which means they would not apply retroactively.

Relevant Companies

• AAPL - Apple Inc.: As a multinational corporation with significant foreign operations, this bill could impact Apple’s tax liabilities on transactions with foreign affiliates.
• GOOGL - Alphabet Inc.: Google conducts substantial business internationally and may benefit from the clarity around foreign tax obligations proposed in this bill.
• TSLA - Tesla Inc.: Tesla has operations and tax matters in various countries, and the bill’s implications for foreign tax rates could influence their overall tax strategy.