G7 tax deal meets friction in divided Washington

Joe Biden’s plan to overhaul the international tax system will face a tough stint in the U.S. Congress as Republicans threaten to reject a possible Senate deal where a two-thirds majority is needed for approval.

Washington’s efforts to break a diplomatic deadlock over how global corporations are taxed paid off this weekend when the G7 backed a global minimum rate of at least 15% and agreed that countries should have the right to tax some of the biggest companies in the world. profits where they are generated.

But approving changes to international tax treaties would require the support of a qualified two-thirds majority in the Senate, posing a problem for the Biden administration as G7 countries pursue a broader deal being negotiated. at the OECD. The Senate is divided equally between Democrats and Republicans.

There was “a big question mark as to whether and when” an international tax deal could be ratified in Washington, said Brian Jenn, a former US Treasury official. “I would say the prospects for Congress to implement any deal remain very uncertain at best.”

Senior Republican lawmakers have lined up to criticize the fledgling multilateral agreement as damaging the competitiveness of U.S. businesses. They accused the US president of ceding tax rights to other countries and failing to resolve a long-standing battle over digital taxes.

Pat Toomey, Republican Senator from Pennsylvania, called the global minimum tax “crazy.”

“Certainly the fact that they had to try to persuade all these other countries to make sure they raise their taxes is an admission of the damage we are doing to our own country,” Toomey told reporters on Capitol Hill. He added: “They certainly wouldn’t have the votes to endorse a treaty like this that they’re considering.”

Senator John Barrasso of Wyoming said the deal was “bad” for the United States. “This tax will be anti-competitive, anti-American and harmful to us as we try to continue to grow the economy as we emerge from a pandemic.” Mike Lee, a senator from Utah, tweeted a Washington Post article on the G7 deal with the words: “This is what a cartel looks like.”

Discord is also gearing up for the future of taxes on digital services in countries like the UK, Italy and France, which are designed to ensure that some of the world’s biggest companies, including US tech giants such as Facebook, Apple and Google, pay more taxes. in countries where they have a weak physical presence.

The new US proposal attempts to replace digital taxes with a formula in which the world’s largest and most profitable companies would be subject to the new rules, regardless of industry, based on their income levels and earnings. profit margins.

As lawmakers on Capitol Hill have united across the aisle to oppose digital taxes on U.S. businesses, Republicans are hinting they might argue that the broader taxation of large corporations is targeting still unfairly the American multinationals. Toomey called the US proposal a “digital services tax under a different name, broader in scope.”

Last week, Mike Crapo, the top Republican on the Senate Finance Committee, wrote to the US Treasury expressing concern that a “disproportionate amount of reallocated profits” included in the new plan “may be those of ‘Leading US companies – namely, US Technology, Pharmaceuticals and Consumer Products Companies’.

Crapo questioned what the United States would get in return for ceding U.S. companies’ taxing rights to foreign countries, and demanded a commitment from the Treasury that countries would repeal their digital taxes once an agreement is reached. of the OECD would be concluded. France, Italy and the UK have all refused to abolish their digital taxes until the US passes the necessary legislation.

Janet Yellen, Secretary of the United States Treasury, stepped in to address concerns from Republican lawmakers. In a letter to Crapo, she replied, “My goals and yours on this topic are aligned. We fully agree that any international tax deal concluded at the OECD must neither harm American businesses and workers nor undermine United States fiscal sovereignty ”.

In the letter, seen by the Financial Times, Yellen assured the senator that “multinational corporations around the world” would be affected by the so-called pillar one which plans to tax corporations in countries where they sell, and that the proposal would not only affect US companies.

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