Yellen’s subsequent take a look at: persuade the G20 that the US Congress will not block tax treaties

0
89
Yellen's next test: convince the G20 that the US Congress won't block tax treaties

WASHINGTON (Reuters) – US Treasury Secretary Janet Yellen helped 130 countries approve a major overhaul of international corporate taxation, but showing them that it can bring on board a deeply divided US Congress could prove just as difficult.

FILE PHOTO: US Treasury Secretary Janet Yellen holds a meeting with International Monetary Fund executive Kristalina Georgieva at the Treasury Department in Washington, USA on July 1, 2021. REUTERS / Evelyn Hockstein

Yellen is expected to ask questions from G20 finance leaders this week at a meeting in Venice, Italy, on how the Biden administration will get legal approval to increase the U.S. corporate minimum tax rate and implement new rules that would allow more countries to stay high Paying taxes to highly profitable multinational corporations.

As G20 tax officials discuss next steps, such as whether the minimum tax rate should exceed 15%, some take a cautious look at Capitol Hill, where Republicans and corporate groups are battling Democratic President Joe Biden’s proposed tax hikes for businesses and wealthy Americans.

These proposals contain important provisions to align US tax laws with the Organization for Economic Co-operation and Development (OECD) international tax treaty and are to be included in a budget balancing measure that the Democrats intend to pass without Republican support.

Senate Republican leader Mitch McConnell on Tuesday promised to try to block a partisan tax bill and promised a “hell of a fight over what this country should look like in the future.”

The divisions could put Yellen in a tough spot as she was a driving force behind the international demand for a global minimum tax of more than 15% and a new mechanism that allows the profits of large multinationals to be partially taxed by countries in which they sell products and services, regardless of where their headquarters and intellectual property are located.

LOGICAL QUESTION

The US movement on key issues brought years of protracted OECD negotiations to success.

“If it pushes the rest of the world to introduce a global minimum tax with a floor of 15%, it will be perfectly reasonable for other countries to say, ‘Will Congress accept what you ask of the rest? World to do? ‘”Said Manal Corwin, director of KPMG’s Washington National Tax Practice.

“It needs to show political commitment by the government to do something about taxation so that other countries will believe we are on the right track,” added Corwin, a former international tax officer with the US Treasury Department.

Tax experts say that since the United States already has a minimum global tax of 10.5% known as the Global Intangible Low-Taxed Income Tax (GILTI), it is likely already compliant with this part of the OECD agreement, the rate however, it would have to increase in order to put a minimum tax rate of 15% into practice.

The Biden government has proposed a US GILTI tax rate of 21%, which is the same as the current domestic corporate tax rate.

Congress would also need to approve amendments to conform to a new multilateral treaty needed to allow for reallocation of taxation rights for multinational corporations.

A US Treasury official said Tuesday that Yellen is working with the Democratic chairs of the House and Senate tax committees to include provisions to bring US tax law in line with OECD goals.

The official said the proposal for multinational taxation rights was carefully crafted to appeal to both Democrats and Republicans as it would remove discrimination against US companies and ban taxes on digital services targeting US tech companies. Preliminary estimates show revenue would not be lost to other countries, the official said, referring to a general Republican complaint.

Foreign officials may have no choice but to trust Yellen to do the job in Congress, said Jon Lieber, US executive director of Eurasia Group, a political risk consultancy. The G20 and OECD are working towards a summit of G20 heads of state and government in October to develop a finalized proposal that is expected to be fully implemented by 2023.

“We are relatively confident that they will find an agreement – that is what the finance minister led us to believe,” said an official from the European finance ministry. “But if they don’t ratify, everything is in question.”

Reporting by David Lawder, additional reporting by Leigh Thomas; Editing by Aurora Ellis