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Global Tax Deal Delayed for Foreseeable Future

Global Tax Deal Delayed for Foreseeable Future

Despite initial optimism regarding an international deal he called “historic and very important,” the secretary-general of the Organization for Economic Cooperation and Development (OECD) informed attendees at Davos that a hoped-for global tax deal would be delayed until 2024 at the earliest. Mathias Cormann attributed the timeline shift to many “difficult decisions,” including the challenge of overcoming objections within the United States Congress. 

If approved, the international deal would both assess a universal 15% tax on the world’s biggest companies and allow countries where those multinational corporations are operating to reallocate their profits and see more income from their sales.

Though an agreement regarding the 15 percent minimum tax rate was reached by more than 130 countries, Cormann referred to multiple roadblocks to reaching an international consensus on the deal, and one of the most daunting is opposition from Republicans in the House of Representatives and Senate. The situation in the United States is made more daunting by the possibility that Democrats will lose their slim majority after the upcoming midterms. 

The goal of the global tax deal is to recoup the estimated $312 billion in tax revenues that countries around the world lose when multinational corporations move their earnings to tax havens. Significant frustration about the situation has been expressed by the Biden administration, which had signaled its interest in reining in corporate use of tax havens. Despite the delay in Europe, Democrats will continue trying to bring the U.S. into alignment with the European strategy, pushing the deal through within a budget reconciliation bill before Congress goes into summer recess. Republicans have indicated that they will not agree to increasing the 10.5 percent minimum tax on corporations’ foreign profits that was established in the 2017 tax law.

The revisions being suggested by Democrats will stop the practice of calculating the global intangible low-taxed income, or GILTI, by lumping together tax paid and profits or losses everywhere but the United States: instead, taxes would be assessed in each country where companies operate, with a minimum tax liability of 15 percent in each. It would put an end to corporations offsetting taxes owed with high tax payments or losses in other locations.

Beyond the battle being fought in the United States Congress, there are indications that Poland is blocking EU approval of the deal, though Treasury Secretary Janet Yellen indicated that she was hoping for a shift in their position after recent discussions. 

The deal, if it goes through, can have a significant impact on countries’ ability to tax large multinational corporations, and could benefit U.S. tech companies, which currently face the risk of having to pay digital services taxes. It would also be an indication of the Biden administration’s leading role on global economic issues. Conversely, Senator Elizabeth Warren warned that failure to pass the deal “would be a terrible embarrassment for our country, for Congress not to be able to pass it just because Republicans want to be able to protect billion-dollar corporations who don’t want to pay any taxes at all.” 

While there is hope that the global tax deal will be included in a smaller version of the reconciliation bill that is currently being negotiated in Congress, there are powerful forces working against that happening. Both the National Association of Manufacturers and the U.S. Chamber of Commerce are lobbying against the changes, which would mean signing on for U.S. corporations to pay higher taxes to foreign countries. But economic experts point out that even without U.S. support if the rest of the world moves forward with the minimum tax penalty, U.S. companies operating in foreign countries would still be liable for the tax.

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Steward Financial

Steward Financial

Jon Osborn is a tax preparer based in San Dimas, California. His company, Steward Financial Services, offers a broad range of tax preparation, accounting and business consulting for small businesses. He loves to work with clients who are looking for answers to complex tax and business planning issues. He has owned several small businesses and worked with over one hundred small business owners. He helps his individual and business tax clients find the best ways to spend their money in order to minimize IRS tax. Small businesses looking to grow, sell or just increase cash flow are one of Jon's specialties.

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