Key US Republican draws lines for global tax deal

By Doug Connolly, MNE Tax

US Senator Mike Crapo (R-Idaho) sent Treasury Secretary Janet Yellen a letter on May 24 outlining potential terms that he would consider acceptable in a global tax deal under the OECD’s Pillar 1 and Pillar 2 talks.  

Crapo asked the Secretary for more information on the impact of the current proposals on US companies and federal tax revenues. The letter also requested assurances about the terms to which the Treasury will agree in global talks.

Regarding the Pillar 1 talks on the partial reallocation of taxing rights between countries, Crapo noted that talks originally centered around taxation of companies with a significant digital presence in markets where they do not have a physical presence. However, he noted that Treasury floated a proposal in April to the 139-country coalition known as the Inclusive Framework that focused on the largest global companies, digital or not.

While Treasury had objected to the OECD’s digital-only approach as discriminatory against US companies, Crapo suggested that the new US proposal will also disproportionately affect US companies.

Crapo said that a principle of no discrimination against US companies in a deal is a “red line” for bipartisan support in Congress.

Crapo said that a principle of no discrimination against US companies in a deal is a “red line” for bipartisan support in Congress.

With this in mind, Crapo requested detailed estimates of the companies that would be in-scope and the amount of profits that would be reallocated.

Crapo also insisted that any agreement must eliminate unilateral digital services taxes. Treasury undoubtedly agrees, and the OECD is working on provisions to address such measures. However, potentially more contentious is what constitutes a unilateral measure. Crapo objected to recent EU comments that its planned “digital levy” is outside the scope of the OECD talks.

The US Treasury has not formally taken a position on the proposed digital levy. However, Crapo stated that the EU statements run counter to the objectives of the OECD negotiations, adding that it would be “unacceptable” to endorse any agreement allowing unilateral measures.

Similarly, Crapo objected to the suggestion that the OECD could reach broader consensus on a global minimum tax under Pillar 2 by allowing carve-outs for certain tax incentives, noting, in particular, the case of China. “No OECD agreement should provide carve-outs or exceptions for our biggest foreign competitors, including China,” he stated.

Crapo also requested assurances from Yellen that the Biden Administration will not move to increase the US global intangible low-taxed income (GILTI) provisions before other countries, including China, have committed to equally stringent minimum corporate taxes.

Crapo also requested assurances from Yellen that the Biden Administration will not move to increase the US global intangible low-taxed income (GILTI) provisions before other countries, including China, have committed to equally stringent minimum corporate taxes.

As some level of Republican support will likely be necessary to move any global tax deal through US Congress, the objections raised by Crapo will require the Secretary’s attention.

As recently noted by a UK official, questions about what the Biden Administration can actually get passed in the US Congress overhang and influence the global negotiations.