WASHINGTON, July 16 (Xinhua) -- While financial leaders of the Group of 20 (G20) major economies have endorsed a deal to overhaul international corporate tax rules, questions remain over the ability of the Biden administration to persuade a deeply divided U.S. Congress to ratify the deal, experts have said.
GLOBAL TAX DEAL
"After many years of discussions and building on the progress made last year, we have achieved a historic agreement on a more stable and fairer international tax architecture," G20 finance ministers and central bank governors said in a communique after a meeting in Venice, Italy last week.
"We endorse the key components of the two pillars on the reallocation of profits of multinational enterprises and an effective global minimum tax," the communique said.
The endorsement by G20 financial leaders came after the Paris-based Organisation for Economic Co-operation and Development (OECD), which hosted the tax talks, announced earlier this month that over 130 countries and jurisdictions have joined a two-pillar framework to reform international corporate taxation rules.
The framework updates key elements of the century-old international tax system, which is no longer fit for purpose in a globalized and digitalized 21st century economy, the OECD said.
Participants in the international tax negotiation plan will finalize the remaining technical work on the framework by October this year and see its effective implementation in 2023, according to the OECD.
The so-called Pillar One of the framework aims to re-allocate some taxing rights over multinational enterprises from their home countries to the markets where they have business activities and earn profits.
"The new rules make some of the largest companies owe taxes based on where their customers are even if they do not have operations, assets, or employees in those jurisdictions," Daniel Bunn, vice president of global projects at the Tax Foundation, told Xinhua.
Pillar Two seeks to set a global minimum tax of at least 15 percent to ensure that multinational companies pay a minimum level of tax wherever they operate in the world.
"If a company operates in low-tax jurisdictions, then the 15 percent minimum tax might apply to them. This reduces incentives to operate in or shift profits to low-tax countries," Bunn said.
Generally speaking, the global minimum tax will likely hit industries with significant presence in foreign countries and those that utilize a lot of intellectual property, for example, technology companies like Google and pharma companies, Kyle Pomerleau, a senior fellow at the American Enterprise Institute, said.
TOUGH BATTLE IN U.S. CONGRESS
A global overhaul of corporate taxation would be a tough sell in the U.S. Congress, with Democrats holding a slim majority in the House and the Senate evenly split.
A number of top Republican lawmakers have denounced the global tax deal as a "surrender" of the U.S. revenue base.
"The Administration should not surrender jobs, growth, or tax revenues to other countries in order to advance a partisan tax increase agenda at home," Mike Crapo, the senior Republican on the Senate Finance Committee, and Kevin Brady, his counterpart on the House Ways and Means Committee, wrote recently in a letter to U.S. Treasury Secretary Janet Yellen.
"Congressional support for an agreement at the OECD will hinge on protecting American workers and the U.S. tax base," the letter said.
While Yellen wants to see the global tax deal put in place to support higher U.S. taxes on companies, that approach sees staunch opposition from Republicans "because they see the effort as one which reduces the competitiveness of the U.S. as a place for investment by multinationals," Bunn said.
Only 78 of the world's 500 largest companies will be affected by Pillar One, but around 64 percent of the Pillar One tax will be attributed to U.S.-headquartered multinationals, researchers at the Oxford University Centre for Business Taxation said.
"I think Pillar One will have a rough ride in the U.S. Congress, especially once the Joint Committee on Taxation calculates how much tax base the U.S. potentially loses," Gary Hufbauer, a former U.S. Treasury official and non-resident senior fellow at the Peterson Institute for International Economics, told Xinhua.
"As for Pillar Two, this won't concern the Congress unless it interferes with favorite tax incentives, such as tax credits for semiconductor firms," Hufbauer said.
Pillar One, which will probably require changes to international tax treaties, would need the support of at least two thirds of the Senate. Pillar Two could be passed through the budget reconciliation process that requires a simple majority in the Senate, potentially without Republican support, tax experts said.
Yellen suggested a two-step process for implementing the global tax deal, with provisions to implement the global minimum tax to be included into a budget reconciliation bill later this year.
"Pillar One will be on a slightly slower track. We will work with Congress. Maybe it will be ready in the spring of 2022, and we will try to determine at that point what's necessary for implementation," Yellen said at a press conference after a G20 finance leaders' meeting in Venice, Italy. Enditem
