If you’re interested in corporate taxes or you’ve been paying attention to world economic news, you’ve heard talk of developments regarding the possibility of a “global minimum tax.” It’s not really a new concept but it has been getting a lot of high-level discussion recently. President Biden and his Treasury Secretary Janet Yellen are promoting a complicated proposal developed by the Organization for Economic Cooperation and Development (OECD). There are many parts to the proposal including a minimum tax of at least 15% intended to discourage companies from relocating to low-tax havens. It’s also intended to establish a system for sharing some of the profit from taxes imposed on the largest international companies based on where they operate and not where they’re headquartered.
The concept has been agreed to by over 130 countries, including the 20 largest economies in the world. (These include China and Russia.) Earlier this month in Venice, Italy, finance ministers and central bankers representing the G-20 gave preliminary approval to the plan. Leaders are hoping to finalize the deal in October at the G-20 Summit in Rome.
While there is much momentum and discussion, there are lots of issues remaining. Ireland and a few others in the European Union are still holdouts. Concerns persist over how it addresses the digital taxes that other countries are imposing on the online giants like Amazon and Google, how it interacts with treaties and whether the U.S. Congress can get on board. These are all tricky matters. Obviously, nothing like this can happen easily or quickly. Even with full consensus the process and legislative approvals will take time. Nevertheless, the level of agreement globally is high.
And believe it or not, there is not complete partisan disagreement within the U.S. since the objectives include trying to keep companies from relocating to low-tax countries and making sure large global entities are less able to avoid American taxes.
But politics will, of course, be at play and the different components of the plan, known as Pillar One and Pillar Two, face separate obstacles. The minimum tax being forwarded by the Biden administration is part of Pillar Two. This portion could be included in a budget bill without Republican backing. However, it is unclear whether Pillar One, which involves dividing up corporate profits with other countries, would require a two-thirds vote in the Senate – making its passage much more questionable. And that could be critical since Pillar One is key to gaining the buy-in of most countries involved.
Resource: Bill Waltz at (317) 264-6887 or email: bwaltz@indianachamber.com
