Proposed US corporate tax hike won’t save global minimum tax deal

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The Chairman, U.S. Senator Joe Manchin (D-WV), attends a U.S. Senate Committee on Energy and Natural Resources hearing on Capitol Hill in Washington, U.S., July 19, 2022. REUTERS/Elizabeth Frantz/ File Photo

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WASHINGTON, July 28 (Reuters) – A corporate minimum tax proposed this week in a congressional spending bill would not bring the United States into compliance with a separately negotiated agreement among 137 countries for a global minimum tax.

Although the two taxes are at the same rate – 15% – they are separate items that apply differently to businesses.

Maverick Sen. Joe Manchin, who struck the legislative deal Wednesday with Senate Majority Leader Chuck Schumer, his fellow Democrat, did not back the global tax plan.

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manchin Told On Thursday, West Virginia Metro News radio said the bill did not include an “offshore” minimum tax, adding: “Our international companies, we haven’t done anything to make them uncompetitive in the global marketplace. “

If passed, the climate and health care investment bill would leave the US Treasury without a path to implement the 15% global minimum tax agreement approved by the countries of the Organization for Economic Co-operation and Development in October 2021.

To comply, the Treasury would have to raise the current overseas corporate minimum tax known as “GILTI” from 10.5% to 15% – a move Republicans and Manchins opposed in the past.

President Joe Biden, a Democrat, backs the corporate minimum tax bill, which would fulfill a campaign promise to make American businesses pay more than the dwindling percentage of the federal budget they’ve contributed to since the 1940s.

It will fund Democrats’ $430 billion cut bill on climate change and prescription drugs. But lawmakers, congressional aides and tax experts say it won’t bring the country into compliance with the global minimum tax. The US Treasury has also acknowledged that additional compliance measures are needed. Read more

The 15% inland tax proposed by the legislation on ‘book income’ of businesses of at least $1 billion a year is separate from the global minimum tax plan, said Manal Corwin, head of national tax practice of KPMG in Washington.

“As a result, its adoption does not align the US rules with the global minimum tax architecture embodied in the second pillar of the OECD proposal,” Corwin said.

A key distinction in the Schumer-Manchin bill relates to allowances for certain business tax credits, such as research and development and other investments, as opposed to the global minimum tax plan.

Under the global minimum tax, U.S. companies with large tax credits could comply with the proposed national minimum while being subject to additional tax on foreign profits, Corwin said.

Some who oppose the global minimum tax, including Manchin, say it would diminish the benefits of these credits.

US Treasury Secretary Janet Yellen, who was one of the driving forces behind the global 15% minimum tax deal last year and persuaded holdout countries to back it, isn’t giving up. implemented by the United States.

Referring to the new legislation, a US Treasury official said: “The Cut Inflation Act’s National Minimum Corporate Tax is an important provision to ensure that large corporations pay their fair share of The global minimum tax remains a top priority for the Biden administration and there are still steps needed to bring the United States into compliance.”

When Manchin pulled out of negotiations on a spending bill earlier this month, Yellen said she would seek every opportunity to enact the global minimum corporate tax, which she helped negotiate. . Read more If other countries go ahead with the minimum tax plan, they could collect additional taxes from U.S. businesses that would otherwise go to the Treasury, Yellen argued, lobbying U.S. lawmakers to that they implement the tax and maintain those. rather income in the United States.

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Reporting by David Lawder; additional reporting by Richard Cowan; Editing by Josie Kao and Howard Goller

Our standards: The Thomson Reuters Trust Principles.

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