US international tax reform debate and advocacy gain steam

By Doug Connolly, MNE Tax

Congressional Republican tax committee leaders sent their Democratic counterparts a letter on September 2 claiming that the Biden Administration is trying to usurp Congress’s lawmaking authority by binding it to a global tax deal. The next day, Treasury Secretary Janet Yellen defended the two-prong approach to international tax reform via tweet.

Meanwhile, numerous advocacy groups have begun throwing their weight behind – or against – the corporate tax reform plans put forward by Biden and Senate Democrats.

The letter from Senate Finance Committee Ranking Member Mike Crapo (R-Idaho) and House Ways and Means Committee Ranking Member Kevin Brady (R-Texas) alleges that Yellen and the Biden Administration are conveying to global leaders that they can unilaterally compel changes in tax law. Regarding the OECD deal, the letter states that Yellen acknowledged that “Congress would be required to enact significant domestic changes in order to comply with the agreement.”

The letter contends that, before the Biden Administration, negotiations with the OECD were conducted on the premise that the existing US global minimum tax (GILTI) would be treated as compliant with any agreement without further amendment. The Republican leaders also objected to the Administration having told the OECD that it would repeal the foreign-derived intangible income (FDII) provision. They urge Democrats not “to concede to an administration’s efforts to undermine the authority of Congress … to set U.S. tax policy.”

The day after the letter, September 3, Yellen contended via tweet that the coupling of a global deal on a minimum tax with US tax reform would enable funding domestic economic investments while protecting US competitiveness internationally. “The U.S. can impose a 21% tax on U.S. corporate foreign earnings — still far less than what’s paid by businesses on Main Street that make their profits at home and still have our corporations be more competitive than they were before.”

Biden’s international tax plans also found a friendlier audience in a letter to Congress dated the same days as the Republicans’ letter and signed by 58 national groups representing workers, students, teachers, religious groups, and small business owners. In support of the Administration’s plan to raise taxes on corporations’ overseas profits, the letter states that US corporations are estimated to dodge USD 60 billion per year in US taxes through profit shifting, with 60% of US multinationals’ offshore profits being reported in “just seven low-tax countries that make up less than 4% of global GDP.”

The groups signing the letter contend that an estimated USD 1 trillion to be raised by Biden’s international corporate tax reform is vital to funding needed domestic investments. They also argue that competitiveness concerns are overblown, based on recent Reuters research finding that US companies would still pay a relatively low effective tax rate compared to their foreign competitors after enactment of Biden’s tax plan.

The US Chamber of Commerce, however, disagrees, arguing on September 2 that the international tax changes will have “severe negative impacts on U.S. workers and the U.S. economy.” The Chamber adds that the Republicans’ 2017 tax law made the US more competitive and that Biden’s plan would drive the US backward “closer to what it was before.” It also touts the FDII provision as a success in encouraging companies to keep their intellectual property in the US.

On the other end of the spectrum, the FACT Coalition urges the Senate to push for relatively more aggressive reform. It suggests that the recently released Senate Democrat plan for international tax reform should go further and equalize the GILTI rate with the domestic rate, eliminate FDII, and adopt Biden’s SHIELD plan rather than just adapting the base erosion and anti-abuse tax (BEAT).