International businesses took a hit yesterday when the House passed, and the President immediately signed, a bill to provide some $26 billion in funding to the states to cover teacher salaries and Medicaid shortfalls. Close to $10 billion of that will come from a bunch of international tax provisions mostly targeting corporate taxpayers.

I asked Joseph M. Calianno, a partner at Grant Thornton and leader of the firm’s international technical tax practice, for his take on the overall impact of the legislation on multinationals. Several of the revenue raisers center on a more restrictive treatment of the foreign tax credit, and “these provisions likely will impact a large number of U.S.-based multinationals by increasing their U.S. taxable income,” he noted. “This could result in U.S. multinationals being less competitive in the global marketplace compared with their foreign multinational counterparts.”

The revenue raisers get into some deep complexity, and there will be a significant impact on compliance activity in addition to the increased liability. Calianno points to the new rules for covered asset acquisitions, such as purchases by U.S. corporations of unrelated foreign businesses under a Section 338(g) election, which generally results in a step up in basis for those assets for U.S. federal tax purposes. “As a result, the U.S. company generally derives a benefit from a foreign tax credit standpoint,” he explains. “This provision relating to covered asset acquisitions will limit the foreign tax credit benefits associated with such transactions, and will also require complex calculations in order for the U.S. company to determine its foreign tax credit.”

Grant Thornton offers a comprehensive, but comprehensible, overview of the new rules here (downloads as a pdf). ###