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The world has just decided to overhaul corporate tax payments, but politics in the United States and the European Union could soon torpedo the deal.
130 countries agreed on an international agreement on Thursday aimed at introducing new taxes for the 100 largest companies in the world and setting a worldwide minimum tax rate of 15 percent for companies. Nine countries, including low-tax countries like Ireland and Barbados, said no.
G20 finance ministers will sign off on the deal next week, paving the way for a new world order by 2023 that will marginalize tax havens and ensure multinational corporations – including US tech giants – pay their fair share of the fees. Negotiations on the fine print will last until October.
But resistance from the EU and bipartisan fighting in the US threatens to undermine the deal before the ink has dried. The reason? The bloc of 27 countries does not agree on how the new rules should be implemented in national law, while Democratic and Republican politicians in Washington are already arguing about whether they should agree to the global pact.
In Europe, Estonia, Hungary and Ireland opposed the deal, fearing that setting a global effective corporate tax rate of 15 percent would undermine their ability to attract future international corporations. Their resistance confronts the Brussels politicians with the difficult task of implementing the global agreement in EU law, since tax proposals have to be unanimously adopted in all member states.
“It is embarrassing an understatement” if the EU does not implement the agreement, said the tax chief of the EU commission, Paolo Gentiloni, in an interview with POLITICO before the climax of the global talks at the Organization for Economic Cooperation and Development (OECD). Brussels plans to propose the minimum corporate tax based on the announcement made on Thursday early next year. “I cannot imagine such an important new global rule without the EU.”
Across the Atlantic, lawmakers like Kevin Brady of Texas, the top Republican on the US House of Representatives’ powerful Ways and Means Committee, called the global tax treaty “a dangerous economic surrender that sends US jobs overseas, undermines and undermines our economy.” dismisses “our US tax base.” Congress is divided on how to proceed, including whether to approve the White House’s plans to revise the country’s national tax rules, which are central to Washington’s participation in the international agreement .
That means trouble for US President Joe Biden, who needs bipartisan support on Capitol Hill. This includes convincing Republicans to support drafting Rules to Stop Harmful Inversions and End Low Taxes (SHIELD), the companies whose international profits are hiding important tax deductions in foreign jurisdictions that do not apply the minimum tax would refuse.
The government will similarly need two-thirds of the U.S. Senate to approve the global tax plan when it is finalized later in the year – a tough sell amid ongoing bipartisan squabbles in Washington. The Senate is split evenly between Democrats and Republicans, with Vice President Kamala Harris tied to give Democrats tight control over the Upper Chamber.
Failure within the US to adopt the rules would be a deal breaker for the EU’s largest economies, particularly France, which has long fought for taxing American tech companies across the bloc. U.S. lawmakers are also reluctant to support the deal until some European countries, including Italy and the United Kingdom, abolish their domestic taxes on digital services, which are aimed solely at American tech giants.
“These discriminatory digital taxes from Europeans are basically a digital dagger aimed at our highly skilled high-wage workers,” said Democratic Senator Ron Wyden from Oregon, a staunch critic of these unilateral levies, told POLITICO in the run-up to the global agreement announcement.
Domestic politics – in both the EU and the US – are not the only likely hurdles.
While officials put the finishing touches to the global tax deal on Thursday, the commission finalizes its own separate so-called digital levy, which will be unveiled on July 14th. These plans will continue after the OECD, according to EU politicians, and aim to call on the largest 9,000 digital companies across the bloc to pay their € 750 billion recovery fund in connection with the coronavirus pandemic.
Such plans have already hit hot water in Washington, where officials and lawmakers suspect Brussels is trying to bypass the global tax treaty to continue targeting Silicon Valley’s most iconic names. Many in Brussels and the EU’s national capitals believe that Google, Amazon and Apple are not paying their fair share into the state coffers as record-breaking profits were made during the pandemic as much of everyday life was relocated online. Companies say levies specifically targeting the digital economy would be discriminatory and would violate global trade rules.
The Commission has tried to reassure Washington that the proposed “soft levy” will target all digital companies operating in the EU and will not discriminate against American companies. This includes dozens of European companies and not just the American tech giants.
But these assurances have fallen on deaf ears. The US government has stressed that its participation in the global deal depends on other countries withdrawing their national digital taxes – and that includes upcoming EU proposals. Otherwise, the global deal could be undone before its details are finalized by the end of 2021.
“The EU digital tax, even if it differs from previous taxes on digital services, endangers the work that is being done through the OECD / G20 process,” Biden’s government wrote this week in a position paper sent to EU diplomats from POLITICO. “We urge you to work with the European Council and the European Commission to delay the publication of the EU proposal on digital delivery.”
Bernie Becker and Emily Birnbaum contributed the reporting from Washington.
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