By Doug Connolly, MNE Tax
The path to U.S. implementation of the internationally agreed global minimum tax hit a snag on Dec. 19, when a key U.S. senator announced he would not support the bill. President’s budget bill that would pass the tax changes.
The news came just a day before the OECD published this morning’s highly anticipated model rules for the implementation of the global minimum tax under pillar 2 of the October 8 pact, which 137 countries – including the United States – have agreed to implement.
While the OECD Model Rules will allow the EU and other jurisdictions to move forward with legislation to adopt the landmark tax agreement, the failure of the United States to pass the amendments correspondents could jeopardize the implementation of the agreement on a global scale.
Adoption booths in the United States
The United States is unique from other OECD pact countries in that it has already implemented a type of global minimum tax through the Global Low-Tax Intangible Income (GILTI) provisions. adopted in the 2017 tax reform.
The US Congress effort – alongside the development of the OECD Model Rules – has been to pass amendments to the GILTI regime to bring it into line with the OECD agreement. In general, this would mean increasing the GILTI rate to 15% and moving its calculation from a global basis to a country-by-country basis.
Provisions to enact the GILTI amendments were included in the Build Back Better bill that the House approved last month after lengthy negotiations within the Democratic party. Last week, the Senate was hammering out its version of the bill, as the president scrambled to secure the vote of wavering Sen. Joe Manchin of West Virginia, whose vote is critical in passing.
Over the weekend, Manchin Told Fox News that he “cannot vote to proceed with this bill.”
The senator’s public stance against the bill seemed to surprise and anger the president, with White House press secretary Jen Psaki posting a statement on Dec. 19 that Manchin’s comments “are at odds with his discussions this week with the President, with White House staff, and with his own public statements.”
Nonetheless, congressional leaders expressed their commitment to continue pushing the bill forward.
Senate Majority Leader Chuck Schumer (DN.Y.) said in a letter to his Senate colleagues, “We will be voting on a revised version of the Build Back Better Act passed by the House — and we will keep voting until we get something done.
Similarly, Senate Finance Committee Chairman Ron Wyden (D-Ore.) said in a statement that it is “extremely disappointing to have to give up major priorities due…to the constraints of legislating in a Senate at equal parts, however… Failure is not an option here.
A statement released by Manchin following its announcement highlighted some concerns about the bill’s overall cost and potential impacts on the deficit and inflation (while the administration argues the effects on both are minimal, or even zero). With regard to the specific provisions he opposes, he expressly only put forward climate measures.
Democrats will no doubt band together, try to figure out what was wrong with the bill they had been negotiating for months, and likely seek a new compromise.
The bill’s social provisions are perhaps more controversial than corporate and international tax provisions at this point, but which tax provisions could be enacted and when has become much less clear over the past two days.
OECD Model Rules
The OECD’s Model Global Anti-Base Erosion (GloBE) Rules, which would implement the 15% global minimum tax under Pillar 2 of the agreement, clarifies the scope and operation of the new regime.
The OECD’s Inclusive Framework, which includes the 137 jurisdictions that have accepted the new rules plus a few countries that have not, approved the Model Rules on Dec. 14.
The Model Rules set out the mechanism for calculating a multinational entity’s effective tax rate on a jurisdictional basis, specify how to determine the amount of “additional tax” to be paid, and provide for the imposition of the additional tax at a member of a multinational group.
The rules also address issues relating to the treatment of acquisitions and disposals of group members, certain holding structures and tax neutrality regimes, and information reporting requirements, as well as transition rules that apply to multinational entities that become subject to the rules.
The Model Rules include significant changes and new details from the October 8 Statement and the OECD Pillar 2 Blueprint released last year.
Doug Connolly is editor of MNE Tax. He has over 10 years of experience in tax legal developments, previously working with both a Big Four firm and a leading legal publisher. He holds a law degree from the American University Washington College of Law.
