Global tax deal takes shape
Negotiators working out the details of a transformative new global corporate tax regime are shaping the deal to maximize its chances of being accepted in the United States, whose companies are most affected by the overhaul.
Officials from the US Treasury and the Organization for Economic Co-operation and Development, which negotiated the October deal between nearly 140 countries, see two fundamental ways to expand support in a politically divided Washington: technical adjustments for guarantee that the United States does not lose revenue, and a call for business to lobby that it is a less bad option than forgoing a global compact.
A key part of the plan is a controversial move to create new rights for governments around the world to tax a group of around 100 companies, nearly half of which are American. It would require some form of support in Congress, where President Joe Biden faces opposition from Republicans.
Without US approval, the whole deal would collapse, weakening public finances on both sides of the Atlantic and reviving the unilateral measures and trade tensions that have made life difficult for multinationals. A rare triumph of multilateral diplomacy in recent years would also be wiped out.
“We are not completely stupid – so we have created a mechanism to make American ratification a no-brainer,” Pascal Saint-Amans, the top tax official at the OECD, said on Wednesday at a briefing by the OECD. association of French economic journalists AJEF. âThere is a serious chance of success. “
The October deal called for a global minimum tax of 15% and an agreement to tax a share of profits made by multinational giants based on where they generate income.
Global Agreement on Corporate Taxation
The leaders want the overhaul of international corporate taxation, a first in a century, to be implemented in 2023. To meet this timetable, the text of the final agreement must be ready in the spring of 2022, before a multilateral agreement on ‘by the end of June, according to the Paris-based OECD.
Technical discussions only started recently. One of the goals is how to keep the promise in the October deal to reallocate profits so that they are taxed where companies actually operate.
The more those reallocated profits come from tax havens rather than a company’s home country, the less Washington has to lose.
All options currently under consideration would be very close to fiscal neutrality for Washington, according to a senior US Treasury official, who requested anonymity because details of the talks are not public.
Saint-Amans said he expects there to be common ground between reallocation entirely from tax havens or entirely from headquarters countries. He also pointed out that Washington would get new taxing rights on 50 or 60 foreign multinational companies that operate in the United States.
“There is even a possibility that it is fiscally favorable,” Saint-Amans said.
The second key approach is to follow through on Treasury Secretary Janet Yellen’s prediction earlier this year that business leaders will turn around to push Congress to approve the deal.
The argument revolves around the demonstration that the alternative to the agreement would be much worse for multinationals. This means not only the return of taxes on digital services imposed on Amazon.com Inc, but a multitude of unilateral measures intended to capture the revenues of companies which have increasingly shifted their profits to tax havens.
Jacob Kirkegaard, Brussels-based senior researcher at the German Marshall Fund, said it was a powerful argument, not because companies like the new deal, but because the international landscape has been turning into chaos for decades. years.
Businesses âwant an open trading system with a certain degree of predictability,â Kirkegaard said. âThey may not like a 15% tax, but they understand that the status quo is not being offered. The alternative is infinitely worse.
The United States Chamber of Commerce, one of the nation’s largest lobby groups, says it does not have enough details to decide whether to support or oppose the tax reallocation component of the new regime fiscal – known as Pillar One.
âThe first pillar may be an improvement over the hodge-podge system we have now,â said Curtis Dubay, senior chamber economist. “But if the details are such that they dramatically increase taxes on American businesses, target American businesses, and are bad for our economy, we will vigorously oppose them.”
The OECD agreement is drafted to apply only to 45 or 50 American companies, which limits its effect.
âIn terms of lobbying in the Senate, you have cut 7,000 to 8,000 companies – and that has a big impact,â Saint-Amans told the OECD.
Tech industry groups, including the Information Technology Industry Council and the Computing and Communications Industry Association, have welcomed the deal – especially its elimination of taxes. on digital services. Amazon issued a statement hailing the “consensus solution for international tax harmonization.”
Looking at the landscape in Washington, Saint-Amans said: âYou could say that the likelihood of the US Senate ratifying a multilateral convention – based on the track record – is close to zero. In reality, and I am not saying this only because I am paid, the chances of Senate ratification are not 100%, but they are well above zero.
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