With the year nearly half over and deadlines approaching for progress on an international agreement designed to ensure that large multinationals pay a global corporate minimum tax rate of 15% in countries where they operate, different tax jurisdictions are chipping away at various obstacles to their adoption.
Internationally, the European Union failed recently to unanimously adopt the agreement, which is part of the OECD’s Pillar Two initiative. In March, Poland, Sweden, Estonia and Malta rejected the minimum tax. In April, Sweden, Estonia and Malta withdrew their objection, leaving Poland to continue its opposition. Meanwhile, Poland and the EU agreed on their recovery plan, which is non-tax-related but was rumored to be the reason for the hold out by Poland, so there could be some movement this month at the next meeting, scheduled for June 12. And here in the U.S., Congress is not yet on track to align with the international tax agreement.
“This would need to be adopted in this country by the U.S. legislative process,” observed Todd Simmens, technical practice leader of tax policy and legislation at BDO USA and former legislation counsel to the Congressional Joint Committee on Taxation. “It would be more difficult to accomplish it by a multilateral treaty, requiring ratification by two-thirds of the Senate, than with a bill. But either way, the Senate would need to be involved.”
While there may not be a deadline in fact, there may be a political deadline, according to Simmens. “Part of the issue from the U.S. perspective is whether we can get bipartisan support in the Senate. I don’t think reconciliation will happen any longer before the November midterm elections, so it would have to be a standalone tax bill which would be subject to filibuster,” he said. “So, it comes down to whether there are enough days left on the calendar and is there enough interest in doing it? There are other priorities, there are recesses and it’s an election year. I think there is enough support for the policy behind the agreement, but the question is whether Congress can get its political act together to do something.”
There is widespread understanding that something needs to be done, Simmens noted. “Even Build Back Better included some changes to [Global Intangible Low-Taxed Income] because there was an understanding that policy needed to be revisited. So there is some bipartisan support for Pillar Two, but the question is if there is enough.”
If the right legislative vehicle were proposed, then there probably would be enough support, Simmens indicated. “It might even get 60 votes in the Senate,” he suggested. “But after the midterm elections, the chances might go down.”
If the balance in Congress stays the same, there might be another shot at reconciliation, he suggested. “But if the House stays the same and the Senate picks up any Democrats, that might change the dynamics,” he said. “And if either or both houses flip, there won’t be anything like Build Back Better, but there will be continued support to do something. At this stage the question is, ‘What will it be?’ It will have to be negotiated because whatever is passed will need the president’s signature.”
One point in favor of adopting U.S. tax policy to the global agreement is that it could help offset revenue losses from the Tax Cuts and Jobs Act, said Simmens.
“The TCJA is a net revenue loser according to the Joint Committee,” Simmens said. “There’s a ballpark estimate that adopting Pillar Two would increase U.S. revenue by $100 billion.” He noted that the Joint Committee does not use dynamic scoring in evaluating revenue effects of tax policy.
