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H.R. 2423: Unfair Tax Prevention Act

The bill known as the Unfair Tax Prevention Act proposes changes to the Internal Revenue Code regarding the base erosion and anti-abuse tax (BEAT), specifically focusing on entities connected to foreign jurisdictions that impose an extraterritorial tax. Here’s a breakdown of the key components of the bill:

Purpose and Overview

The main aim of the bill is to modify how the BEAT applies to foreign-owned entities that are subject to an extraterritorial tax. An extraterritorial tax, as defined in the bill, is a tax imposed by a foreign country based on income or profits associated with a corporation, determined by the connections between the entities involved.

Definitions

Foreign-owned extraterritorial tax regime entity: This term refers to any entity controlled by a foreign organization that faces an extraterritorial tax.
Extraterritorial tax: Any tax imposed by a foreign country related to the income or profits of a controlled corporation.
Foreign entity: Defined as any non-individual foreign person, including corporations.

Key Provisions

The bill redesignates part of the current tax code to introduce specific rules for foreign-owned entities that are affected by extraterritorial taxes.
Such entities will be considered applicable taxpayers under certain conditions, with specific adjustments to the way the base erosion tax benefit is calculated.
For these foreign-owned entities, 50% of their cost of goods sold will be regarded as a base erosion tax benefit concerning base erosion payments. This is significant as it could impact tax liabilities for these entities.

Changes to Tax Calculation

The bill specifies that the date of enactment of the new subsection will replace an upcoming deadline (December 31, 2025) for existing regulations regarding the application of the BEAT. Certain subsections that were previously applicable to BEAT calculations will no longer apply to these foreign-owned entities under the new legislation.

Effective Date

The modifications proposed by this bill will become effective for taxable years starting after its enactment, which means that any tax year beginning after the bill's approval will follow the new rules outlined in this legislation.