Global tax deal could lead to changes in Democrats’ budget plan | New

WASHINGTON – As they scramble to raise taxes on U.S. companies doing business overseas, Democrats consider tweaking some details to line up with a landmark deal for other countries to charge similar levies and reduce tax evasion in the process.

House Democrats drafted their international tax plan with an eye on global negotiations when they incorporated it into their budget reconciliation bill, a filibuster-proof package intended to put in place works much of President Joe Biden’s national agenda.

Now that the bill has stalled as Democrats debate spending levels, details of the global deal are consolidating and influencing discussions on exactly how the United States will raise taxes on multinationals – s’ they manage to push the plan beyond the pro-business centrists.

For starters, Democrats are discussing postponing tax increases to give other countries time to implement their own minimum taxes on the income of large multinationals around the world. At the end of last week, 136 jurisdictions agreed to an overall minimum rate of 15%, a basic outline of the rules and an implementation timeline that would not see the new tax regimes of other countries start before at least 2023.

“Rather than competing on our ability to deliver low corporate rates, America will now be competing on the skills of our workers and our ability to innovate, which is a race we can win,” said the Treasury Secretary Janet L. Yellen in a statement following the announcement.

International officials are now scrambling to unveil more detailed rules in November, when world leaders are expected to meet to bless the deal. Meanwhile, Democrats in Congress are aiming for a move on the budget package by the end of October. This provides clarity on how the world will head towards minimum tax, joining the United States, the only country that currently has one.

A higher U.S. minimum tax rate than what the Organization for Economic Co-operation and Development-led agreement contemplates and certain related provisions would take effect next year under the current reconciliation bill. Democrats could push it back a year or more to align with when other countries should start charging taxes, with some items starting in 2023 and 2024.

Delaying effective dates would cost revenue, which Democrats must cover expenses in the budget bill for which they have pledged to be fully paid. However, the price tag goes down due to demands from the moderates, and tax increases should be reduced accordingly.

There are several parts to the House Ways and Means Committee plan that would begin next year.

Currently, companies pay a base rate of 10.5% on “global low-tax intangible income,” known as GILTI, from mobile assets held abroad such as patents and trademarks. This rate effectively rises to 13.125%, because companies lose part of the rebate they get on taxes paid to foreign countries.

The Ways and Means Bill would raise the GILTI base rate to nearly 16.6 percent; the measure would restore some but not all of the foreign tax credits, bringing the effective rate to around 17.5 per cent. The measure would also reduce GILTI deductions for tangible assets such as plant and equipment as well as deductions for foreign profits from intellectual property owned by the United States. And that would force companies to calculate the GILTI in each country individually, rather than allowing the pooling of profits overseas to offset more of what might be owed in low-tax countries.

In total, the provisions would bring in around $ 266 billion over a decade, according to the Joint Committee on Taxation, or nearly 10 percent of Ways and Means’ compensation package.

“Public and private contribution”

The Ways and Means panel drafted its proposals with international negotiations in mind, according to a committee collaborator who spoke on condition of anonymity, adding that the bill “clearly brings US law towards the end. ‘current agreement’. But the assistant admitted that changes were possible.

“On time, the president received public and private contributions from many members on the date of entry into force of the new international regime,” the assistant said in an email, referring to committee head Richard E . Neal, D-Mass. “In view of the importance of these provisions, he will continue to discuss this issue with his colleagues and the Administration as [reconciliation bill] advance in the legislative process.

Senate Finance Chairman Ron Wyden lobbied for his own international tax plan on the House version. Ahead of the announcement of the global deal, the Oregon Democrat said last week that clarity on international efforts would be a factor.

“Of course, when you work on a final bill, you look at the economic circumstances and the challenges,” he said.

Yellen has coordinated closely with Wyden and Neal to ensure that international tax proposals to Congress will meet the obligations of the global deal, a senior Treasury official said this week. The official added that the House and Senate proposals include the key elements to meet the international agreement: increase the GILTI rate and move to a country-by-country tax calculation system.

A delay could allay some concerns within the party. Eleven House Democrats said in a letter to Neal in August that they wanted coordination between U.S. policy and the deal brokered by the OECD.

But some Democrats remain reluctant to change the way the United States taxes multinationals before other countries fully enforce similar taxes. Representatives Tom O’Halleran of Arizona, Lou Correa of ​​California and Henry Cuellar of Texas wrote to House leadership on October 8, saying the changes proposed by GILTI could hurt the competitiveness and employment of United States.

They called for a pause on international tax changes and said the wait would allow Congress to craft policy based on how other G-20 countries write their minimum tax regimes.

“These proposed international tax increases would impact US competitiveness overseas, particularly with Chinese competitors,” O’Halleran said in a statement. “Until other countries adopt a similar tax structure, implementing this international financing will only cripple American businesses with red tape and financial burden. House and committee leaders should reconsider these proposed GILTI taxes in the legislation we are reviewing this fall. “

Cuellar signed another letter in late September, expressing concerns about several budget provisions regarding their impact on the oil and gas industry. Cuellar and his moderate colleagues representing the districts of South Texas, Vicente Gonzalez and Filemon Vela, have expressed their opposition to the international tax provisions of the bill, describing them as anti-competitive.

O’Halleran is co-chair of the Blue Dog Coalition of Centrist Democrats. He is one of the GOP’s main targets next November in a swing district he won by 3 points last year and which Biden also narrowly won after the Democratic presidential candidates lost there in 2016. and 2012.

Arizona’s sprawling 1st District collides with Phoenix and Tucson, areas where multinationals opposed to international tax increases like Raytheon Technologies, Honeywell International, American Express, and Bank of America are big employers.

Cuellar, Correa, and Gonzalez are also Blue Dogs, and like O’Halleran, Gonzalez has been asked for party support in a tough race next year. Cuellar, Gonzalez, and Vela represent districts that are home to oil and gas companies fighting against overseas tax increases; The Correa district is home to Disneyland, where Walt Disney Co., another multinational that fights higher taxes on foreign income, is Anaheim’s largest employer.

Read the tea leaves

Corporate lobbyists are generally opposed to tax changes as a whole. But they are resigned to the idea that something is likely to pass and remain quietly engaged with lawmakers and staff to ensure the changes at least align with the OECD accord and do not disadvantage businesses. American.

Some are discussing a delayed schedule with lawmakers, and the idea of ​​a trigger mechanism that raises the U.S. tax rate when other countries have done the same has also been floated, according to sources familiar with the talks. But it could lose significant revenue that Democrats are banking on.

Ways and Means Representative Donald S. Beyer Jr. said this week that he expects international tax changes to be incorporated into the final bill. The Virginia Democrat acknowledged that GILTI’s final rate could be 15% and go into effect about a year later to appease moderates.

Beyer is not afraid of losing a competitive advantage. He said it was always worth it to be an American company with a slightly higher rate on foreign profits, and he doesn’t expect companies to move to lower tax regions if the United States s ‘are moving towards a higher rate a year earlier.

“It would be untenable to imagine that we could first convince the OECD and then many, many, many other countries to establish this minimum tax and then not be part of it ourselves,” Beyer said. Tuesday. “I don’t see that.”

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