Yellen predicts Ireland, EU will cooperate on minimum tax, but US might move first

By Doug Connolly, MNE Tax

US Treasury Secretary Janet Yellen said today that she has had constructive talks with the Irish finance minister and believes that Ireland – and the entire EU – will work with the US on a global minimum tax. However, she added that the US would strengthen its case for gaining a broad consensus if it acts domestically to adopt a minimum tax in accordance with what was agreed by the G7.

Speaking virtually in a June 16 Senate Finance hearing, Yellen also addressed concerns about ongoing digital services taxes under an international tax deal, saying that the US has made important progress in ensuring their removal.

Global minimum tax

Yellen responded to questions from Senator Crapo (R-Idaho) regarding US action on a minimum tax in the face of holdouts on an international agreement. Crapo has urged Yellen to commit that she and the Biden Administration will not move to increase the global minimum tax in the US before securing broad international commitments. 

Yellen responded that the US reform and an international agreement should be pursued “in tandem.” However, she added that “if we’re able to make progress domestically … and ourselves move [the global minimum tax] into the same territory we’re asking other countries to do, I think we have a very good chance of getting them to agree.”

This would mean not only increasing the rate but moving the US global minimum tax – i.e., the global intangible low-taxed income (GILTI) provisions – to a country-by-country calculation, as specified in the agreement reached by the G7. 

GILTI currently allows blending of income in high- and low-tax jurisdictions, which, it has been argued, diminishes its effectiveness. 

Moreover, Yellen suggested that the US stands to gain by moving on international tax reform, even apart from the additional persuasive effect it might have on global talks. She said such reform would help fund other provisions in the President’s budget and “stop incentives that many American firms now have to shift profits and actual production activity away from our shores.”

With respect to holdouts on a global minimum tax agreement, Yellen said she has “had very constructive bilateral conversations with the Irish finance minister and believe[s] that he’s going to be working with us … to try to raise the global minimum tax – even though that’s a highly consequential matter for Ireland.”

She added that she believes “the entire EU will in the end go along with higher minimum taxes.” Apart from Ireland, Hungary has been another outspoken opponent within the EU of the minimum tax.

Otherwise, Yellen said that while a broad agreement is needed, a few countries not agreeing will not be an issue. Enforcement mechanisms, including the Biden Administration’s SHIELD proposal outlined in the Green Book, will ultimately bring holdouts into agreement. 

Regarding timing, she added, “We’re really looking for agreement on this by the time of the … G20 summit next October.”

Digital services taxes

Yellen said that the Biden Administration is committed to ensuring that any international tax agreement includes provisions requiring the removal of all digital services taxes, which the Administration considers discriminatory against US companies. She said the Administration has already achieved such an agreement among the G7 countries. 

Yellen added that steering group member countries “have accepted that [digital services taxes] need to be rolled back” in a mark of “important progress.”  

The steering group is composed of international representatives of 24 countries, half of which are OECD members. It forms a subgroup of the broader “Inclusive Framework” on base erosion and profit shifting (BEPS), which brings together 139 countries to work on BEPS and related international tax issues.

Notwithstanding this progress, Yellen said that the US is “retaining all options for discouraging the use of” digital services taxes. 

To this end,  the US has pursued measures to impose tariffs “if it were to become necessary to get prompt action to eliminate” such taxes, and it intends to bring the threat of such tariffs to the bargaining table.