Home >News >World >Companies speed up tax analysis in response to Biden infrastructure plan

Finance chiefs are considering their options to offset potential cost increases stemming from a higher corporate tax rate and other tax proposals by the Biden administration.

President Biden last week outlined a $2 trillion infrastructure plan to be funded in part by raising the corporate rate to 28% from 21% and hiking the minimum tax on U.S. companies’ foreign profits. The plan would also make it tougher for foreign-owned businesses with U.S. operations to benefit from moving their profits to low-tax countries.

The proposal, which is aligned with Mr. Biden’s campaign position, would reverse elements of the 2017 tax overhaul that reduced the federal tax rate for companies from 35% to 21%. Raising the minimum tax for global intangible low-taxed income, or GILTI, to 21% also could bring a greater tax burden.

Companies such as railroad operator Union Pacific Corp., insurer FM Global and technology firm Uniphore Technologies Inc. are analyzing steps they could take in response to the suggested changes.

Omaha, Neb.-based Union Pacific expects that the company might have less money to invest if taxes were to rise, Chief Financial Officer Jennifer Hamann said. The railroad company is still evaluating how to offset these additional costs, Ms. Hamann said. She declined to comment on potential actions Union Pacific might take.

The company spent $875 million on rents for freight cars and other equipment for the fiscal year ended Dec. 31, down 11.1% from the previous year. Union Pacific’s effective tax rate was 23.4% in 2020, down from 23.6% in 2019. It expects to allocate about $2.9 billion for capital expenditures in 2021, up 2.1% from 2020, the company said.

FM Global, a Johnston, R.I.-based mutual insurance company, is considering deferring a tax incentive known as bonus depreciation, finance chief Kevin Ingram said. Bonus depreciation allows companies to immediately deduct a large chunk of the purchase price of certain assets such as equipment, as opposed to writing them off over several years.

By deferring bonus depreciation and other incentives, FM Global can take deductions in future years when tax rates could be higher, he said. The company isn’t considering permanent changes to its business, he said.

“Our tax planning has taken on an increased pace and increased sense of urgency now," Mr. Ingram said, referring to Mr. Biden’s newly unveiled plan. Privately held FM Global said it paid a global tax rate of 19.9% in 2020, compared with 20.3% in 2019. It had 5,548 employees as of Feb. 28.

The proposal, which marks Mr. Biden’s first detailed tax proposal since taking office in January, could be changed or scaled back as it moves through Congress. Republicans are strongly opposed to tax increases, saying they could spur slower wage growth and job cuts. Democrats have very narrow majorities in the House and Senate and will need almost unanimous backing to advance the package without Republican votes.

Companies won’t know until later which of the proposals actually comes to fruition. In many cases, they have already modeled Mr. Biden’s plan and are making investments based on forecasts they have adjusted for potential related risks, said John Gimigliano, head of tax legislative services at professional-services firm KPMG.

Palo Alto, Calif.-based Uniphore, which sells software for voice analysis, is watching closely how the plan could affect its U.S. taxes and those on its overseas operations, CFO Stephane Berthier said.

Under Mr. Biden’s plan, profit on domestic operations would be taxed at 28%, while profit on foreign operations would be taxed at 21%. Uniphore, which does business in the U.S., Canada and several Asian countries, doesn't plan to alter its growth strategy or shift the location of its operations if the tax proposal becomes law, Mr. Berthier said.

“I’m not going to try to put in place a very complex tax structure, which will force me to hire people in a particular territory, when I don’t necessarily need those people," he said.

Uniphore currently has about 300 employees.

Nina Trentmann contributed to this article.

This story has been published from a wire agency feed without modifications to the text.

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