WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen was able to help corral 130 countries to agree to a major revamp of international corporate taxation, but showing them she can bring a deeply divided U.S. Congress on board may prove equally challenging.
Yellen is expected to face questions from G20 finance leaders at a meeting in Venice, Italy, this week about how the Biden administration will win legislative approval to increase the U.S. corporate minimum tax rate https://www.reuters.com/business/countries-backs-global-minimum-corporate-tax-least-15-2021-07-01 and implement new rules that would allow more countries to tax large, highly profitable multinational corporations.
While G20 finance officials discuss next steps, such as whether the minimum tax rate should exceed 15%, some are casting a wary eye towards Capitol Hill, where Republicans and business groups are fighting Democratic President Joe Biden’s proposed tax increases on corporations and wealthy Americans.
These proposals contain key provisions to align U.S. tax laws with the Organization for Economic Cooperation and Development’s (OECD) international tax deal and are expected to be included in a budget reconciliation measure that Democrats aim to pass without Republican support.
Republican Senate leader Mitch McConnell on Tuesday vowed to try to block a partisan tax bill, promising a “hell of a fight for what this country ought to look like in the future.”
The divisions could put Yellen in a tight spot, because she has been a driving force behind the international push for a 15%-plus global minimum tax and a new mechanism allowing the profits of large multinational firms to be partly taxed by countries where they sell products and services, regardless of where their headquarters and intellectual property reside.
LOGICAL QUESTION
U.S. movement on key issues brought years of drawn out OECD negotiations to fruition.
“If she’s pushing the rest of the world to adopt a global minimum tax with a floor at 15%, it is going to be completely rational for other countries to say, ‘Is Congress going to accept what you’re asking the rest of the world to do?,'” said Manal Corwin, the head of KPMG’s Washington National Tax practice.
“She’s going to have to show a political commitment on the administration’s part to do something in the tax space in order for other countries to believe that we’re on track,” added Corwin, a former U.S. Treasury international tax official.
Tax experts say that since the United States already has a 10.5% global minimum tax, known as the Global Intangible Low-Taxed Income tax, or GILTI, it is likely already compliant with that part of OECD deal, but would need to raise the rate to make a 15% minimum tax work in practice.
The Biden administration has proposed a 21% U.S. GILTI tax rate, equal to the current domestic corporate tax rate.
Congress also would need to approve changes to comply with a new multilateral treaty needed to allow for the reallocation of taxing rights for multinationals.
A U.S. Treasury official said on Tuesday that Yellen is working with the Democratic chairs of House and Senate tax writing committees to include provisions to bring U.S. tax law in line with the OECD goals.
The official said the multinational taxing rights proposal has been carefully crafted to appeal to both Democrats and Republicans, as it eliminates discrimination against U.S. companies and would ban digital services taxes targeting U.S. technology firms. Preliminary estimates show that revenues would not be lost to other countries, the official said, addressing a common Republican complaint.
Foreign officials may have little choice but to trust that Yellen can get the job done in Congress, said Jon Lieber, U.S. managing director for political risk consultancy Eurasia group. The G20 and OECD are working towards an October G20 leaders’ summit for a completed proposal, with full implementation targeted for 2023.
“We are relatively confident that they will find an agreement — that’s what the Treasury secretary has led us to believe,” said one European finance ministry official. “But if they don’t ratify, then everything will be up in question.”
Source: Economy - investing.com
