The US Treasury refines its proposal to apply a global minimum corporate tax of 15%

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WASHINGTON — The U.S. Treasury on Monday proposed a new mechanism to comply with and enforce a 15% global minimum corporate tax agreed last year by 136 countries, in part by denying deductions for taxes paid in high-rate jurisdictions. lower.

The new undertaxed profit rule proposed as part of President Joe Biden’s fiscal year 2023 budget plan would replace the current U.S. Base Erosion Anti-Abuse Tax (BEAT) with a new system that would act as a “top-up tax” to ensure that multinational corporations pay an effective tax rate of at least 15%, the Treasury said in budget documents released Monday.

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The global minimum tax agreement negotiated through the Organization for Economic Co-operation and Development (OECD) aims to end a competitive spiral of lower corporate rates and an erosion of government revenues while by denying benefits to tax haven countries.

A key feature of the Treasury’s proposed rule is that it would generate additional revenue by denying deductions to businesses as long as they pay a tax rate of less than 15%, a US Treasury official told Reuters.

Where U.S. subsidiaries of foreign corporations use U.S. deductions and credits to lower their effective tax rates below 15%, the proposal includes an inland tax to capture the difference in the U.S., rather than cede to foreign countries, corresponding to the mechanisms imposed by other countries.

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The official said the Treasury stands ready to work with Congress on enabling legislation to ensure the benefits of US tax credits and other incentives for US corporations are preserved.

The new plan, which applies to companies with global sales of more than $850 million, follows the so-called “model rules” for global minimum tax agreed last December.

The proposal is the latest in a series of tax changes launched by the Treasury over the past year to negotiate and implement the far-reaching global tax agreement, which also includes a separate “pillar” to reallocate international taxing rights to large technology and other companies. highly profitable multinationals.

The Biden administration had sought to include tax changes to implement the global minimum tax in a sweeping social and climate investment bill, but that legislation stalled in Congress in late 2021.

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Biden’s budget seeks to increase the US corporate tax rate to 28% from 21% and to increase the current US minimum rate overseas to 20% from 10.5%, as well as to raise taxes on wealthy people.

The legislative path to follow to meet the 2023 deadline for implementing the minimum tax is unclear.

By including the new plan in the Treasury’s “green book” of budget revenue proposals, the Biden administration shows that it is “still very, very committed to a global consensus on a global minimum tax,” Manal Corwin said, head of KPMG’s Washington. national tax practice and former US Treasury tax officer.

“From a messaging perspective, it’s important because you see Treasury at least building into their budget that they’re following the global architecture,” Corwin said. (Reporting by David Lawder; editing by Jonathan Oatis, Mark Porter and Shri Navaratnam)

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