Washington — In June, months after reluctantly signing a US-mediated global tax agreement, the Irish Finance Minister sought peace of mind that the Biden administration would postpone the closing of the deal. I personally met with Finance Minister Yeren.
Mr. Yelen told Paschal Donohoe that the government could secure enough votes in Congress to ensure compliance with the agreement aimed at cracking down on companies that the U.S. tax evades by shifting employment and profits. Guaranteed. In the world.
Yellen turned out to be too optimistic. At the end of last week, West Virginia Democratic Senator Joe Manchin III effectively discontinued the Biden administration’s tax agenda in Congress. Democratic leadership. He expressed deep concern about international tax transactions, which he had previously said he could support, saying that it would put US companies at a disadvantage.
“I said I’m not going that way abroad now because other countries don’t obey, and we endanger all international companies and harm the American economy.” Manchin told a West Virginia radio station on Friday. “So we took it off the table.”
Manchin’s reversal, Expressed in the language used by Republican opponents One of the deals is a blow to Mr. Yellen, who spent months trying to get more than 130 countries involved. It is also a defeat for President Biden and the Democratic leaders of the Senate, many in the hope that businesses will lead the world in preventing job changes and income shifts to minimize taxes. He urged raising the tax rate for national companies.
This agreement would have brought about the biggest changes in global taxation in decades, including tax increases for many large companies and changes in taxation methods for technology companies. The two-sided approach requires countries to set a minimum tax of 15%. This means that no matter where the store is located, the company will pay at least that amount of tax on global profits. Governments can also tax the world’s largest and most profitable businesses based on where goods and services are sold, rather than where they were headquartered.
Not getting an agreement at home causes confusion for both the Biden administration and multinationals. While many other countries may push for ratification of the agreement, some are now boldly trying to break the coalition and some are still marketing as corporate tax shelters. May open the door.
For now, this situation will allow companies like pharmaceutical giant AbbVie to continue to actively use global tax avoidance strategies. The Senate Finance Committee reported this month that the company accounted for three-quarters of sales to U.S. customers in 2020, but reported only 1% of U.S. revenue for tax purposes. It was. As a result, we were able to reduce the effective tax. The tax rate is about half of the 21% American corporate income tax rate.
Not changing international tax law creates new uncertainty for large tech companies like Google and Amazon, as well as other companies that make money from consumers in countries with few employees or physical offices. May bring. Part of the global agreement was aimed at ensuring that these companies were taxable and how much they would have to pay.
The US refusal to participate would be a significant setback for Yellen. Yellen saw her role in completing her deal as her representative diplomatic achievement. Last year she worked on tax benefits to countries around the world, from Ireland to India, but only saw her own political party refuse to listen to her call for embarkation. ..
After Mr Manchin’s comment, the Treasury said it had not given up on the deal.
“The United States has promised to continue to set the world’s lowest tax,” said Michael Kikukawa, a spokesman for the Treasury, in a statement. “It is very important for our economic strength and competitiveness not to complete this agreement. We will continue to consider every possible means to achieve it.”
Given that Republicans oppose some of the plans and Democrats have little control over the Senate, the US path to approving the World Agreement has faced challenges from the beginning.
To comply with the agreement, the United States needs to raise the tax rate that businesses pay on foreign revenues from 10.5 percent to 15 percent. Parliament also needs to change the way taxes are applied and impose them on a country-by-country basis. This prevents businesses from simply looking for tax havens and “blending” tax rates to reduce taxes.
The Biden administration wanted to enact these changes through a stagnant buildback better bill, or a smaller spending bill that Democrats wanted to go through a budget process that didn’t require Republican support.
“Yellen and her team have always insisted that they can make the necessary changes,” Donoho said in an interview in June. “Yellen reiterated all ongoing work in the House and Senate to secure the votes needed for this change.”
Congress will also have to amend tax treaties to empower other countries to tax large US multinationals based on where their products are sold. The legislation will require the support of Republicans who have shown no tendency to vote for it.
American tech giants such as Google and Amazon have been very supportive of the proposed tax reforms as a way to put an end to the complex thickets of European digital service taxes enacted in recent years. If the agreement is reached, they will face a new wave of uncertainty.
The entire project has been volatile in recent months amid ongoing opposition in the European Union, delays in technical details, and concerns about whether the United States will actually participate. Nonetheless, it remains possible that the European Union and other countries will move the agreement forward and leave it as a nasty outlier from the agreement that revived the United States last year.
“It looks like the architecture is very likely to come up with or without the United States,” said Manalcowin, a Treasury official at the Obama administration, who currently heads Washington’s tax practice at KPMG. “If there are some countries that make the first move, whether in the EU or the other important masses, I think we can see other countries follow up soon.”
This poses a risk to US companies. This includes the potential for higher tax claims, given that the Treasury has helped create an enforcement mechanism to lead unwilling countries to an agreement. If the United States does not adopt a minimum tax of 15%, US companies with subsidiaries in participating countries could pay fines to those foreign governments.
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“If Congress doesn’t adopt it, it won’t prevent the European Union, Japan, etc. from moving forward in this area. At that point, we believe it will be in the interests of the United States. We will be hit by this enforcement principle.” Told. Kimberly Clausing, who recently resigned as Deputy Assistant Secretary for Tax Analysis at the Treasury, said: I said at an event at the Tax Policy Center last month.
Ernst & Young’s global tax policy leader, Barbara Angus, said that if the United States did not comply with the deal, it would have a “significant impact” on US companies.
“Consistency and coordination are really necessary for this framework to work as intended,” said Angus, a former Supreme Tax Advisor to the Houseways and Means Commission.
The Treasury was unable to provide an estimate of the additional taxes that US companies would have to pay to foreign governments if the United States was excluded from the global agreement. If fully enacted, the agreement is expected to bring about $ 200 billion in tax revenue to the United States over a 10-year period.
Pascal San Amance, director of the Organization for Economic Co-operation and Development’s tax policy and administration center, believes the European Union will find a way to overcome the opposition of its member states, and ratifying the agreement will pressure the United States to participate. You will be able to call.
“When the EU moves, the United States has the following options: to delegate or transfer taxation rights to US multinationals to Europe,” Saint-Amans said in a text message. “Even Republicans never let go of this.”
So far, Republican opposition to tax arrangements seems unlikely to bend. Lawmakers complained of being excluded from international negotiations last year and accused Yellen of giving foreigners new authority to tax US companies.
“The world is being promoted by the Biden administration, but by raising the world’s minimum tax rate based on an agreement that is neither enforceable nor complete nor in our interests, the United States will make the economy an economy for foreign competitors. You should know that you will never surrender. ” Texas Representative Kevin Brady, Top Republican of the Houseways and Means Commission. “Parliament does not ratify the OECD Agreement, which allows constitutional powers to be taxed or does not protect major US tax incentives.”
“There is little political support for an agreement that makes the United States less competitive and leaves our tax base to foreign competitors,” said Brady, who retires at the end of his term.
