Yellen’s big global corporate tax plan is in danger of failing Congress (1)

0

treasury secretary Janet YellenAnna’s success in securing the biggest global corporate tax reform in decades risks backtracking in her own country’s legislature, potentially sowing the seeds of renewed international tensions in the years to come.

Announced as a “historic agreement“When the two-part agreement was reached last October, the framework would set a global minimum tax rate of 15% and rewrite the rules for allocating taxation of corporate profits between countries.

Until the Russian-Ukrainian war brought a lot of new challenges, it was the biggest victory of Yellen’s tenure. But part of the pact between nearly 140 countries may never materialize. He needs congressional approval but lacks universal support from Democrats and faces concerted Republican opposition.

With the GOP set to win at least one of both houses of Congress in the November election, it leaves the deal on hot coals in the United States. Globally, only part of the deal could survive, with the risk of further battles over attempts by foreign countries to collect more from the US giants.

The 15% minimum rate, known as pillar two, is included in a broader bill incorporating the president Joe Bidenlong-term economic program. But, months away from a full campaign mode that will end most legislative work, there is no indication that the White House is engaging with two Democratic senators who have been reluctant on the package – Joe Manchin of West Virginia and Arizona Kirsten Sinema.

Potential distribution

The first pillar would reshape the rules for allocating corporate profits across borders, a plan that would require the revision of many global tax treaties. In the United States, it is particularly difficult, as it could require at least 67 senators to vote in favor of treaty changes – a highly unlikely outcome in this ultra-partisan chamber.

“The second pillar will be widely implemented around the world even if the United States does not implement the first pillar,” said Chip Harter, senior policy adviser at PwC and former deputy assistant secretary of the Treasury for tax affairs. international. But the failure of the United States to follow through on the first pillar would likely prevent its implementation, “renewing concerns about a global proliferation of uncoordinated unilateral tax measures, and the implications for international trade and investment”.

A new way to tax global corporations, explained: QuickTake

Republicans have made their opposition clear.

Mike Crapo

Photographer: Eric Lee/Bloomberg

“I do hope that the agreement will not be implemented by the United States,” said the senator Mike Crapo of Idaho, the top Republican on the Senate Finance Committee, said in an interview. “That would be a terrible mistake.”

Yellen argued that the global agreement should have the support of both parties to end corporate tax avoidance worldwide.

“I think this is an important initiative and I would like to see bipartisan support for this. It is in the overall interest of the United States and nonpartisan,” Yellen said earlier this month.

But the eventual passage in Congress of the global minimum tax cannot be ruled out, said Ruth Mason, a professor at the University of Virginia School of Law. US companies would still be subject to the second pillar rules applied by other countries, which would raise taxes on these companies to the minimum rate.

“At some point Congress is going to look at this and say ‘we’re leaving money on the table,'” Mason said.

Yellen expects to push forward the global effort to implement the deal at a meeting of chief financial officers from the Group of Seven advanced economies in Bonn, Germany, on May 19-20.

VIDEO: Will the Global Minimum Tax End the Race to the Bottom?

European position

Crapo, who would be first in line to lead the Senate’s fiscal policy portfolio if Republicans have a majority next year, has vowed to halt work on the plan if his party is in charge. This would effectively block any momentum in Washington to implement any aspect of the global fiscal pact.

Yellen had hoped that progress towards implementation in the European Union could help build momentum. But there have also been bumps along this road, with Poland refusing its support – insisting on advancing the two pillars simultaneously, something other countries have pushed aside.

Yellen unlikely to win US corporate backing for global tax deal

Yellen, traveling in Europe this week, failed to secure a promise from Warsaw to lift her grip while she was in Poland. It is unclear whether Poland could change its position in the coming months at EU meetings, where unanimous support for the tax deal would be required.

Janet Yellen in Brussels, Belgium, on May 17.

Photographer: Valeria Mongelli/Bloomberg

Some still see global support as helping to generate interest in Washington.

company hall

“International taxes only work if you have a lot of countries that are really in on it,” the senator said. Elizabeth Warren, a Massachusetts Democrat, said earlier this month, praising Yellen’s role in the deal. “She really pushed and got a deal with countries around the world that realized tax havens were killing everyone.”

Elizabeth Warren

Photographer: Tom Williams/CQ Roll Call/Bloomberg

Yellen also argued that corporate America would lobby Congress to push for changes, which she said will give them greater certainty. It’s not yet the case. Instead, companies are asking the Treasury to delay implementation or scrap the plan altogether.

“They see a lot of compliance costs, effort and time,” Jeff VanderWolk, a partner at law firm Squire Patton Boggs and a former official at the OECD, the Paris-based institution that brokered for the agreement.

While businesses would in theory appreciate simpler and clearer international tax rules, the global minimum tax is unlikely to achieve this, as each country will implement the rules in the way most beneficial to them, said VanderWolk. Political changes in other countries could also lead to rule changes overseas, he said.

At the same time, the agreement’s drafters anticipated countries would be reluctant to sign, so they crafted it in a way that would incentivize businesses to join the global minimum tax regime, Mason said.

(Updates to add Yellen comments from 10th paragraph)

–With the help of Isabelle Gottlieb.

To contact the reporter on this story:
Laura Davison in Washington at [email protected]

To contact the editors responsible for this story:
Joe Sobczyk to [email protected]

Christopher Anstey

© 2022 Bloomberg LP All rights reserved. Used with permission.

Share.

Comments are closed.