S-5350-119
Read twice and referred to the Committee on Finance.
Sponsored by Martin Heinrich (D-NM)
What it does
This bill would remove the exclusion for foreign oil and gas extraction income from the calculation of "net CFC tested income" under the global intangible low-taxed income (GILTI) rules, subjecting more foreign oil and gas profits earned by U.S.-controlled foreign corporations to U.S. minimum tax. It would also expand the definitions of "foreign oil and gas extraction income" and "foreign oil related income" to include income from oil shale and tar sands extraction, and would tighten foreign tax credit rules for "dual capacity taxpayers" (companies that pay a foreign government both as a taxpayer and in exchange for a specific economic benefit, such as a drilling concession).
Who benefits
The U.S. Treasury, through increased tax revenue; domestic energy producers who do not operate significant foreign oil, gas, oil shale, or tar sands operations and would not face this added tax burden; advocates of reduced fossil fuel foreign tax benefits and increased tax parity between foreign and domestic extraction income.
Who is hurt
Large multinational oil and gas companies with foreign extraction operations, including foreign oil shale and tar sands projects, which would face higher U.S. tax liability on that income; shareholders of those companies, who may see reduced after-tax profits; potentially consumers if higher tax costs are passed through in fuel prices, though this effect is uncertain and would vary by company and market conditions.
Supporters argue
Supporters argue that current law creates a loophole allowing multinational oil and gas companies to shield foreign extraction income, including from oil shale and tar sands, from the minimum tax that applies to other foreign corporate income, giving these companies a tax advantage unavailable to companies in other industries. They contend that tightening the dual-capacity taxpayer rules would prevent companies from disguising payments to foreign governments for drilling rights as creditable foreign taxes, which they argue costs the U.S. Treasury revenue while doing nothing to promote actual energy independence.
Opponents argue
Opponents argue that raising the U.S. tax burden on foreign oil, gas, oil shale, and tar sands income could discourage American companies from pursuing overseas energy projects, potentially reducing their global competitiveness against foreign state-owned or foreign-domiciled competitors not subject to U.S. tax rules. They contend that tightening dual-capacity taxpayer rules could result in U.S. companies effectively facing double taxation on foreign income if foreign tax credits are disallowed, and that this could raise costs that are ultimately passed on to consumers or reduce U.S. energy sector investment and jobs.
Constitutional context
Congress has broad authority under the Taxing and Spending Clause (Art. I, §8, cl. 1) and the Sixteenth Amendment to tax income, including foreign-source income of U.S. persons and controlled foreign corporations; this bill raises no unresolved constitutional question, as it modifies existing statutory tax definitions rather than creating a new type of tax or altering the tax-versus-penalty line.
Checks and balances
Congress exercises its taxing power directly through statutory amendment; the IRS and Treasury would issue implementing regulations, and courts retain authority to review disputes over statutory interpretation, such as the definition of "dual capacity taxpayer" or "specific economic benefit."
Historical precedent
The dual-capacity taxpayer rules and GILTI/foreign tax credit provisions targeted here originated in the Tax Cuts and Jobs Act of 2017 and earlier Treasury regulations dating to 1983, both of which have been subject to periodic legislative and regulatory amendment.