(Bloomberg) -- U.S. multinationals that derive or book substantial profits overseas might face a new tax on some of their future earnings going forward, under the House tax bill released Thursday.
The measure would apply a 10 percent tax rate on “high returns” that U.S. parents receive from foreign subsidiaries -- though it’s not clear what would constitute high returns. Ernst & Young said the new tax would fall on “potentially significant amounts of foreign income.”
The new tax is intended to prevent multinational corporations from continuing to lower their U.S. tax bills by booking earnings overseas in low-tax jurisdictions, according to the summary. Countries like Ireland have a 12.5 percent corporate rate -- well below the 20 percent rate proposed in the House bill.
The new 10 percent tax would target “the return that a foreign subsidiary is getting on its intangible assets,” said Michael Mundaca, co-leader of the Ernst & Young Americas Tax Center and a former top Treasury tax official.
The tax is known in policy circles as a minimum tax on future foreign earnings, but the bill and summary don’t use that language.
“This was purposely opaque,” said Henrietta Treyz, director of economic policy and a managing partner at Veda Partners. “They are under strong pressure from multinationals to make sure that they don’t get hit hard.”
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