The European Commission laid down a marker Wednesday on global efforts to force the world’s largest companies to pay €150 billion more in annual tax after announcing proposals that would cement a new global minimum corporate tax rate across the 27-country bloc.
Brussels’ efforts come despite a setback in Washington, where President Joe Biden’s efforts to pass domestic legislation bringing United States tax law in line with the new international agreement fell short over the weekend after prominent Democratic Senator Joe Manchin of West Virginia blocked those plans.
Failure to get the bill through Capitol Hill could spell disaster for the global agreement, which is designed to obliterate tax havens and ensure multinational firms pay their fair dues. The efforts are expected to become law in more than 130 countries by 2024.
Leaders from G20 countries approved the initiative in October after the Organization for Economic Cooperation and Development brokered a package of corporate tax reforms among 137 countries a few weeks prior.
The OECD package deal includes a levy on the world’s 100 biggest companies, which the Commission on Wednesday said could help pay back the debt the EU raised to finance its €800 billion recovery fund. The EU is expected to pocket the lion’s share of the €150 billion in additional yearly tax income generated from the new minimum corporate tax rate. Another part of the global tax deal would see the world’s largest companies divvy up part of their annual tax receipts by country, based on where these firms have customers.
Both elements of the global tax deal are in jeopardy if Biden falls short of implementing them into American law.
Global talks over the accord have been going on for years amid growing protests from European policymakers over how little tax tech giants such as Google, Facebook and Amazon pay into national coffers. Their size and ability to operate across the globe without setting up a physical shop have allowed them to make billions while paying very little to tax authorities.
Those protests led to transatlantic trade tensions, as the likes of France, Spain and Italy introduced their own tech taxes that primarily hit the U.S. digital giants. The OECD accord is supposed to replace those national taxes and smooth over tensions by the end of 2023, when the two initiatives are set to be operational.
Failing to meet that deadline would only leave the world in a continued state of uncertainty. But the Commission’s tax chief, Paolo Gentiloni, isn’t so worried.
“I’m quite confident of the fact that despite the difficulties that we see in the legislative process in the U.S., we will have their support,” the Italian said after unveiling the EU bill. “I don’t think that the discussion ongoing in [the] U.S. is concentrated on this issue of corporate taxation and the contacts that we have [said] the chance to go on with their legislation is absolutely there.”
Problems on the Hill
The U.S. already has a minimum tax regime in place. But legislation that includes a section to expand the existing minimum tax to better match the newly developed OECD standard has stalled in the Senate.
Still, optimism remains high in Washington. Multiple tax lobbyists and lawyers said a temporary delay in agreeing to a global minimum tax rate would not upend U.S. participation, so long as the holdup doesn’t drag too deep into 2022.
“That would be just a question of when, not if,” one of the lawyers said on condition of anonymity to avoid client conflicts of interest. But the situation gets dicier if the delay extends toward the second half of the year or longer, as it would run into the mid-term U.S. elections next November. Biden and Democrats in Congress had tried to wrap up the work before breaking for Christmas, but fell short and will pick back up in the new year.
“If we get more than a few months into the year without movement, then I think all of this would start to come into question,” warned a lobbyist.
The slowdown largely hinges on Manchin, whose vote in the evenly split Senate is needed for Democrats — in the absence of any support from Senate Republicans — to align the current U.S. minimum tax on global low-tax intangible income, or GILTI, with the OECD.
Manchin’s reservations are less related to the GILTI measure and focus primarily on his opposition to domestic spending programs that cost more than he believes is necessary to support the U.S. economy amid a new rise in COVID-19 cases.
Assuming Biden manages to get the accord through Congress, there are a few hurdles facing the global initiative in the EU.
Tax bills require unanimous support from the bloc’s governments, meaning a single veto could grind the EU’s first-mover advantage to a halt. That shouldn’t happen, as all EU countries have given their political backing to the global project. France is also determined to use its incoming six-month Council presidency for legislative talks to agree on a new tax by April.
Treasury officials are, however, keeping cautious eyes on Estonia, which was one of the final EU holdouts over the OECD deal amid concerns that it could complicate its tax code. That could signal an opportunity for firms that disagree on how the new tax rate will be enforced.
U.K. mining giant Anglo American, for example, is critical of how little the OECD consulted the industry over how the initiative will work in practice.
“We note that a number of technical challenges still need resolving,” David Murray, head of tax policy and sustainability at Anglo American, said in an emailed statement. “We look forward to the OECD delivering additional guidance and work in 2022 that will be a critical enabler for countries to then be in a position to implement coherent rules.”
The Commission, for its part, put its trust in the OECD’s work and opted against carrying out a study of how the minimum rate will impact the EU market, as is the norm, to ensure the initiative is in place by 2023.
“There is an extreme political urgency to go forward with the project,” the Commission wrote in the bill that’s designed to introduce the tax rate into EU law. “This means that it is essential to have a swift adaptation and implementation process.”
Want more analysis from POLITICO? POLITICO Pro is our premium intelligence service for professionals. From financial services to trade, technology, cybersecurity and more, Pro delivers real time intelligence, deep insight and breaking scoops you need to keep one step ahead. Email firstname.lastname@example.org to request a complimentary trial.
https://ift.tt/eA8V8J December 22, 2021 at 07:35PM
Bjarke Smith-Meyer, Aaron Lorenzo, Mark Scott