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The European Commission put a marker Wednesday on global efforts to force the world’s biggest corporations to pay 150 billion euros more in annual taxes after announcing proposals that would cement a new global minimum corporate tax rate in the 27-nation bloc .
Brussels’ efforts come despite a setback in Washington, where President Joe Biden’s efforts to pass national legislation bringing US tax law into line with the new international agreement failed this weekend after prominent Democratic Senator Joe Manchin of West Virginia blocked those plans.
Failure to push the bill through Capitol Hill could spell disaster for the global deal, which is designed to obliterate tax havens and ensure multinational corporations pay their fair dues. These efforts are expected to become law in more than 130 countries by 2024.
Leaders of G20 countries endorsed the initiative in October after the Organization for Economic Co-operation and Development negotiated a package of corporate tax reforms in 137 countries a few weeks earlier.
The OECD’s comprehensive deal includes a levy on the world’s 100 biggest companies, which the Commission said on Wednesday could help pay off the debt the EU took on to finance its 800 billion euro stimulus fund. The EU is expected to pocket the lion’s share of the €150 billion in additional annual tax revenue generated by the new minimum corporate tax rate. Another part of the global tax deal would see the world’s biggest companies allocate part of their annual tax revenue by country, depending on where those companies have customers.
Both elements of the global tax agreement are at risk if Biden fails to implement them into US law.
Global talks on the deal have been going on for years amid growing protests from European policymakers over how few tax tech giants such as Google, Facebook and Amazon are paying into national coffers. Their size and ability to operate globally without setting up a physical store has allowed them to earn billions while paying very little to tax authorities.
These protests have led to transatlantic trade tensions, as France, Spain and Italy have introduced their own tech taxes that have mainly hit US digital giants. The OECD deal is meant to replace those national taxes and ease tensions by the end of 2023, when both initiatives are expected to be operational.
Failure to meet this deadline would only leave the world in a permanent state of uncertainty. But the Commission’s tax chief, Paolo Gentiloni, is not so worried.
“I am absolutely convinced that despite the difficulties we see in the legislative process in the United States, we will have their support,” the Italian said after unveiling the EU bill. “I don’t think the ongoing discussion in [the] The United States is focused on this issue of corporate taxation and the contacts we have [said] the chance to continue with their legislation is absolutely there.
Trouble on the Hill
Still, optimism remains high in Washington. Several tax lobbyists and lawyers have said a temporary delay in agreeing to a global minimum tax rate would not upset U.S. participation, as long as the lockdown does not extend too deeply into 2022.
“It would just be a matter of when, not if,” said one of the attorneys, speaking on condition of anonymity to avoid client conflicts of interest. But the situation becomes more difficult if the delay extends into the second half of the year or more, as it would clash with the US midterm elections next November. Biden and Democrats in Congress had tried to wrap up the job before the Christmas break but were unsuccessful and will resume in the New Year.
“If we go more than a few months in the year with no movement, then I think that would all start to come into question,” one lobbyist warned.
The slowdown largely hinges on Manchin, whose equally divided Senate vote is needed for Democrats — absent any support from Senate Republicans — to align the current U.S. minimum tax with low-tax global intangible income. , or GILTI, with the OECD .
Manchin’s reservations are less tied to the GILTI measure and focus primarily on his opposition to domestic spending programs that cost more than he deems necessary to support the US economy amid a further rise in COVID cases. -19.
Assuming Biden manages to push the deal through Congress, the EU’s global initiative faces a few hurdles.
The tax bills require the unanimous backing of bloc governments, meaning a single veto could end the EU’s first-mover advantage. This should not happen, because all EU countries have given their political support to the global project. France is also determined to use its upcoming six-month Council presidency for legislative discussions to agree a new tax by April.
Treasury officials, however, are keeping a cautious eye on Estonia, which was one of the last EU holdouts on the OECD deal, fearing it could complicate its tax code. This could signal an opportunity for companies that disagree on how the new tax rate will be applied.
British mining giant Anglo American, for example, criticizes the OECD’s lack of industry consultation on how the initiative will work in practice.
“We note that a number of technical challenges still need to be resolved,” said David Murray, head of fiscal policy and sustainability at Anglo American, in an emailed statement. “We look forward to further guidance and work from the OECD in 2022 which will be a key catalyst for countries to then be able to implement consistent rules.”
The Commission, for its part, trusted the work of the OECD and chose not to carry out a study on the impact of the minimum rate on the EU market, as is the norm, to ensure the implementation of the initiative by 2023.
“There is an extreme political urgency to move forward with the project,” the Commission wrote in the bill to introduce the tax rate into European law. “That means having a quick adaptation and implementation process is key.”
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