This Week in Taxation: US Senate Agreement Guarantees Minimum Tax Rate


Senators Joe Manchin and Chuck Schumer reached an agreement on minimum U.S. taxation on Wednesday, July 27, ending the impasse over long-debated parts of President Biden’s international tax agenda.

While Manchin opposed the Build Back Better Bill two weeks ago, he agreed to its rewrite under the Cut Inflation Act of 2022. It includes an alternative minimum corporate tax ( CAMT) – the simplified US version of the OECD global tax rules.

CAMT is technically a 15% tax on corporate profits in consolidated accounts, but it differs from the OECD global framework which requires country-by-country taxation. Advisers say “the devil is in the details”, and it is unclear whether the OECD will accept CAMT as part of the second pillar.

The Global Intangible Income Low Tax Rate (GILTI) is already a US minimum tax on foreign income, but it should co-exist with the CAMT to better align with the OECD global framework.

Tax professionals say GILTI should be grandfathered as the OECD’s income inclusion rule (IIR), which applies additional tax when a foreign company pays below the minimum rate.

“The GILTI changes are not yet part of the reconciliation package since Manchin only wants changes after the rest of the world has started implementing them, so we are in a bit of the same position as before,” says Daniel Bunn, executive vice president of the Tax Foundation in Washington DC.

“If other countries apply the OECD model rules, Biden’s proposal would be a much more burdensome policy for businesses than what other countries could adopt,” he adds.

CAMT is levied after GILTI is applied and credits are available to cover double taxation issues of second pillar implementations in other countries. Where CAMT’s liability exceeds the US corporate income tax liability under the normal rules, the minimum tax will apply directly.

CAMT allows for a global merging of profits and taxes, which deviates from the framework proposed by the OECD. However, if the CAMT is considered a TII under the OECD’s second pillar model rules, then it would protect US corporate profits from minimum taxes in other countries.

Regardless of the specifics of the legislation, Manchin’s support is notable after he opposed the tax provisions of Bill BBB earlier in July. This decision seemed to torpedo any hope of passing legislation on the second pillar.

The Manchin-Schumer deal still needs to pass a vote in the House of Representatives before it goes to Biden’s office, but the legislation has a chance of becoming law as early as August.

Prime Minister’s leadership race means UK tax cuts

The two candidates in the Tory leadership race for Britain’s next prime minister pledge to cut taxes, but disagree on timing and details.

Former Chancellor Rishi Sunak has declared his intention to temporarily abolish VAT on household energy bills if he wins the September election. The plan would cost the UK Treasury around £4 billion ($4.8 billion) a year.

Meanwhile, her rival, Foreign Secretary Liz Truss, has pledged to reverse tax increases Sunak chaired in government. However, the main difference is that Sunak has argued for tackling inflation before making tax cuts so far.

Truss has always argued that tax cuts are the best way to spur economic growth, even if it involves a large deficit. She pledged to drop plans to raise corporation tax from 19% to 25% by 2024 and reverse the 1.25% increase in National Insurance.

Truss also pledged to suspend the windfall tax passed to claw back “excess” profits from the oil and gas industry. These changes would cost the Treasury more than £30 billion a year.

The Conservative leadership election has turned into a race for tax cuts, with both candidates trying to persuade party members that their tax agenda will reap the most benefits.

Prime Minister Boris Johnson announced earlier this month that he would step down.

The start date of the first pillar in 2024 under review

In other news, tax directors say approval of the first pillar could be jeopardized by uncertainty surrounding its two fundamental elements – the A and B amounts.

“The first pillar is complex, the second pillar is much simpler,” said Ednaldo Silva, founding director and TP expert at online database company RoyaltyStat in Washington DC. “Multinationals and tax administrations want certainty and the second pillar brings that to the table.

“The big question is that you still need TP rules for the proper allocation of taxable income to jurisdiction,” he added.

Due to the scope of the first pillar and its complexity, internal discussions within multinational enterprises (MNEs) have focused on the second pillar proposal.

The first pillar targets multinationals with a total turnover of more than 20 billion euros ($23.6 billion) – meaning fewer companies will be affected by the rule than the second pillar. The second pillar will impose an overall minimum tax of 15% on multinationals whose turnover exceeds 750 million euros.

A tax chief for a manufacturing company in Switzerland said RTI that companies are still anticipating the likely effect of the OECD’s two-pillar solution on their operations, despite ongoing debates.

“The second pillar is where most businesses work,” the tax chief said. “The first pillar is further away – the United States has a say and a lot of clarity is needed. The first pillar must be postponed; the date is not an option.

The 2024 deadline set by the OECD may be difficult to meet, after all.

Read the full article here

Economic uncertainty increases competition for tax staff

As RTI reported this week, global economic uncertainty has made it difficult to retain key personnel as competition for the best candidates has intensified between companies.

This follows concerns about a further economic slowdown as businesses continue to suffer from the COVID-19 pandemic and high inflation following the war in Ukraine.

These factors have hit the tax labor market, with companies reporting fierce competition to attract and retain talent.

Companies are being forced to reassess staff compensation levels to keep up with increasing market rates, while providing greater opportunities for career development.

Competition in the United States appears to be particularly fierce with a reported shortage of tax talent relative to available roles. This supply glut seems particularly acute in the more strategic roles, including tax data and technology.

A divide has also been observed among young recruits who are increasingly emphasizing non-salary considerations such as cultural fit, career fulfillment, work-life balance and progression.

The tax directors responded with a series of measures. These options include expanding employee scope and skills development, as well as offering flexible work arrangements.

However, some tax professionals warn that greater accountability and promotions will not be enough to retain staff if they are not accompanied by good management support and higher compensation.

Read the full article here

Other RTI this week’s headlines include:

Stalling OECD pillars could jeopardize TP progress, sources say

Credits and GST audits in India that worry the company

Countries reluctant to take first step on minimum tax

Crypto Fiscal Framework on G20 Role for October

Investors are turning to FTTs for treaty benefits

HMRC publishes TP Bill

The US semiconductor chip manufacturing industry is expecting a windfall of R&D tax credits in August. RTI will provide an in-depth analysis of the R&D tax regime and its benefits for this industry.

Taxpayers must go back to basics after the UK’s top court rules against BlackRock over its TP deals. HMRC disallowed BlackRock’s interest deductions on the grounds that the company’s intercompany loans were not issued on arm’s length terms.

In other news, RTI examines how multinationals in Canada are facing greater uncertainty due to increased scrutiny by the Canada Revenue Agency. It boils down to a little-known law requiring companies to pay federal and provincial taxes on insurance premiums.

Readers can expect these stories and more next week. Don’t miss the main developments. Sign up for a free trial for RTI.


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