Obama Administration Releases FY 2011 Budget
On 1 February 2010, the Obama Administration released its Fiscal Year 2011 Budget (“FY2011 Budget”). The Administration first proposed extensive reform of the international tax rules in its Fiscal Year 2010 Budget (“FY2010 Budget”). The FY2010 international proposals were estimated to raise $210 billion by the Treasury Department over 10 years. The US Treasury Department estimates that its international tax proposals in the FY2011 Budget will raise approximately $123 billion over 10 years.
To become law, these proposals must be passed by the US Congress, consisting of the Senate and the House of Representatives. It is important to note the Obama Administration is not able to directly introduce new legislation into Congress. The passage of legislation is a political process; therefore, any legislation in this area may differ from the Obama Administration’s proposals. To date, no legislation regarding the FY2011 Budget international proposals has been introduced in either the Senate or the House of Representatives.
The FY 2011 Budget reintroduces most of the international tax proposals from the FY 2010 Budget but notably drops the FY2010 Budget proposal to overhaul the check-the-box entity classification regime. The FY2011 Budget introduces two new international proposals aimed at taxing excess returns from offshore transfers of intangibles and disallowing the deduction for certain affiliated company reinsurance premiums.
Key highlights from the FY 2011 Budget include the following:
Entity Classification (“check-the-box”) Reform
The FY2010 Budget provided for significant reform of the “check-the-box” rules for determining entity classification. However, the FY2011 Budget does not contain such a proposal.
The FY2011 Budget proposes extending certain expiring provisions through 2011. In particular, it is proposed that the active financing and look-through exceptions of §954(h) and (c)(6), respectively, be extended for an additional two years.
The attached US Tax Alert (PDF, 55 KB) provides a short summary of the new international tax proposals in the FY2011 Budget and highlights changes to the international tax proposals (PDF, 65 KB) in the FY2010 Budget. Except as otherwise noted, all proposed changes would be effective for taxable years beginning after 31 December 2010.
If you have any questions please contact one of the US Corporate Tax Services team.