Navigating the Expiration of the U.S. Tax Cuts and Jobs Act: Preparing for 2025

With 2025 fast approaching, businesses, especially multinational corporations, are bracing for the potential expiration of key U.S. Tax Cuts and Jobs Act (TCJA) provisions. Signed into law in 2017, the TCJA made sweeping changes to the U.S. tax system, notably lowering the corporate tax rate from 35% to 21%. However, many of these provisions were designed to be temporary, and without Congressional action, they will expire in the next few years. For multinational corporations (MNCs) with operations in the U.S., the potential expiration represents significant uncertainty, especially as the global tax landscape becomes more complex.

The Key Provisions at Risk

Several important provisions of the TCJA are set to expire or begin to phase out by 2025. These include:

1. Corporate Tax Rate

One of the TCJA's most impactful aspects has been the reduction in the corporate tax rate from 35% to 21%. However, this rate reduction was not permanent. Unless Congress acts to extend it, corporate tax rates could rise once again, potentially increasing to pre-TCJA levels.

A rise in the corporate tax rate would affect the global tax planning strategies of multinational companies, as the U.S. is a key market for many businesses. Higher corporate taxes could influence where companies choose to allocate profits and reinvest earnings.

2. Bonus Depreciation

Under the TCJA, businesses were allowed to fully deduct the cost of capital investments (like machinery, equipment, and infrastructure) in the year they were purchased — a practice known as bonus depreciation. This provision has spurred investment in the U.S. economy over the past few years, but it has already begun to phase out. In 2024, businesses can deduct only 80% of the cost of new investments, and by 2027, this provision will be completely phased out.

As bonus depreciation phases out, businesses may face higher upfront tax liabilities, which could affect their capital investment decisions and make long-term planning more difficult. Many MNCs are already accelerating their investments to take advantage of the remaining benefits.

3. GILTI Provisions

The Global Intangible Low-Taxed Income (GILTI) tax was introduced under the TCJA to prevent U.S. companies from shifting profits to low-tax jurisdictions. GILTI imposes a minimum tax on foreign income that exceeds a specified threshold. However, GILTI provisions are also subject to potential changes after 2025.

A possible tightening of GILTI rules would have a significant impact on U.S. multinationals with substantial operations abroad, forcing them to reevaluate how they structure their global profits and manage their foreign subsidiaries.

The Global Context: Pillar Two and Digital Taxation

The expiration of the TCJA’s key provisions comes at a time when the global tax landscape is undergoing significant changes, driven by initiatives like the OECD’s BEPS 2.0 framework and the rise of digital services taxes (DSTs). These developments, combined with the potential changes in U.S. tax laws, are creating a perfect storm of tax uncertainty for multinational corporations.

1. OECD’s BEPS 2.0 and the Global Minimum Tax

As covered in previous articles, the OECD’s Base Erosion and Profit Shifting (BEPS) 2.0 project introduces a global minimum corporate tax rate of 15%, targeting profit shifting by multinational corporations. This framework is gaining support worldwide, and many countries are expected to implement these rules in the coming years.

For U.S. multinationals, the interaction between the global minimum tax and GILTI provisions will be critical. Some experts believe that the U.S. may tighten GILTI rules to ensure that U.S.-based companies comply with both domestic and international tax obligations.

2. Digital Services Taxes (DSTs)

Several countries, including France, Italy, Spain, and India, have introduced digital services taxes (DSTs) targeting global tech giants. These taxes are designed to ensure that companies like Google, Facebook, and Amazon pay taxes in the countries where they generate significant digital revenues, even if they have a limited physical presence there. The U.S. has expressed concerns over DSTs, arguing that they unfairly target American companies.

If the TCJA provisions expire, U.S. tech companies may face a “double hit” of increased corporate tax rates at home and higher tax burdens abroad due to DSTs. These companies must develop strategies to mitigate the impact of this dual taxation.

Strategies for Navigating the Post-TCJA Tax Environment

As the U.S. tax landscape becomes more uncertain, businesses need to take proactive steps to prepare for potential changes in 2025. Here are some strategies multinational corporations should consider:

1. Accelerate Capital Investments

With the phase-out of bonus depreciation already underway, businesses should consider accelerating their capital investments in the U.S. to take advantage of the remaining tax benefits. For companies with significant U.S. operations, this could mean investing in new infrastructure, upgrading machinery, or expanding production capacity before bonus depreciation fully phases out.

2. Reevaluate Transfer Pricing Strategies

The potential expiration of TCJA provisions, combined with the global minimum tax, will require businesses to revisit their transfer pricing strategies. As tax authorities around the world step up enforcement of profit allocation rules, MNCS must ensure that their transfer pricing policies align with economic substance and reflect the value created in each jurisdiction.

3. Optimize Global Tax Structures

With the interplay between U.S. tax changes and international tax reforms, businesses may need to restructure their global operations to optimize their tax positions. This could involve shifting IP assets to countries with more favorable tax regimes, restructuring supply chains, or exploring opportunities for tax relief under double tax treaties.

As we look ahead to 2025, the expiration of key provisions of the Tax Cuts and Jobs Act will have significant implications for multinational corporations. The potential increase in corporate tax rates, the phase-out of bonus depreciation, and changes to GILTI rules all present challenges that businesses must address now to mitigate risks.

However, these changes are occurring in the broader context of global tax reforms, including the OECD’s Pillar Two framework and the rise of digital services taxes. For businesses operating in the U.S. and abroad, developing a proactive tax strategy is essential for navigating the uncertainties of the post-TCJA era.

By accelerating investments, revisiting transfer pricing policies, and seeking expert consultancy, businesses can position themselves for success in a new, more complex tax environment.