Major hurdles still lie ahead if countries want to revamp the global tax system.
The world just agreed to overhaul how companies pay tax, but politics in the United States and European Union could soon torpedo the deal.
A total of 130 countries on Thursday agreed to an international accord aimed at introducing new levies for the world’s 100 biggest companies and setting a global minimum corporate tax rate of 15 percent. Nine countries, including low-tax jurisdictions like Ireland and Barbados, said no.
Finance ministers from G20 countries will rubber-stamp the deal next week, paving the way for a new world order by 2023 designed to sideline tax havens and ensure multinationals — including U.S. tech giants — pay their fair share in dues. Negotiations over the fine print will continue until October.
But resistance from within the EU and bipartisan battles in the U.S. threaten to undermine the agreement even before the ink is dry. The reason? The 27-country bloc is not in agreement over how to write the new rules into national law, while Democratic and Republican politicians in Washington are already arguing over whether to approve the global pact.
In Europe, Estonia, Hungary and Ireland all opposed the deal amid concerns that setting a 15 percent global effective corporate tax rate would undermine their ability to attract future international business. Their opposition leaves Brussels’ policymakers with the difficult task of implementing the global agreement into EU law, as tax proposals require unanimity across all member countries to be approved.
“Embarrassing is quite an understatement” if the EU fails to implement the agreement, the European Commission's tax chief, Paolo Gentiloni told POLITICO in an interview, ahead of the culmination of the global talks at the Organization for Economic Cooperation and Development (OECD). Brussels plans to propose the minimum corporate tax, based on Thursday's announcement, early next year. “I can’t imagine such an important new global rule without the EU.”
Across the Atlantic, lawmakers like Kevin Brady of Texas, the top Republican on the U.S. House of Representatives' powerful Ways and Means Committee, described the global tax deal as “a dangerous economic surrender that sends U.S. jobs overseas, undermines our economy, and strips away our U.S. tax base.” Congress is split down party lines on how to proceed, including whether it should approve White House plans to overhaul the country's domestic tax rules that are central to Washington's involvement in the international accord.
That spells trouble for U.S. President Joe Biden, who needs bipartisan support on Capitol Hill. That includes convincing Republicans to back draft rules on Stopping Harmful Inversions and Ending Low-Tax Developments (SHIELD), which would deny key tax deductions to companies whose international profits are stashed in foreign jurisdictions that don’t adopt the minimum tax.
The administration similarly will need two-thirds of the U.S. Senate to approve the global tax plan when it's finalized later in the year — a hard sell amid ongoing bipartisan bickering in Washington. The Senate is divided evenly between Democrats and Republicans, with Vice President Kamala Harris' tie-breaking vote giving Democrats narrow control of the upper chamber.
Failure within the U.S. to adopt the rules would be a deal-breaker for the EU’s largest economies, especially France, which has long fought for taxing American tech companies operating across the bloc. U.S. lawmakers are also reticent to back the deal until some European countries, including Italy and the United Kingdom, scrap their domestic digital services taxes targeted solely against American tech giants.
“These discriminatory digital taxes from the Europeans are in effect a digital dagger aimed at our high-skill, high-wage workers," Democratic U.S. Senator Ron Wyden of Oregon, a staunch critic of these unilateral levies, told POLITICO ahead of the global deal's announcement.
Brussels vs. Washington
Domestic politics — both in the EU and the U.S. — are not the only likely hurdles.
Even as officials put the final touches on the global tax agreement Thursday, the Commission is finalizing its own, separate so-called digital levy that will be unveiled on July 14. Those plans, according to EU policymakers, will go ahead even after the OECD agreement, and are aimed at asking the largest 9,000 digital companies across the bloc to help pay for its €750 billion recovery fund related to the coronavirus pandemic.
Such plans have already run into hot water in Washington, where officials and lawmakers suspect Brussels is trying to sidestep the global tax agreement to continue targeting Silicon Valley's most high-profile names. Many in Brussels and EU national capitals believe the likes of Google, Amazon and Apple are not paying their fair share into governments’ coffers amid record-setting profits earned during the pandemic as much of daily life moved online. The companies say levies specifically targeting the digital economy would be discriminatory and break 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 doesn’t discriminate against American firms. That will include scores of European firms, and not just the American tech giants.
But those reassurances have fallen on deaf ears. The U.S. administration has stressed that its participation in the global deal is contingent on other countries withdrawing their national digital taxes — and that includes the EU's upcoming proposals. Failure to do so may scupper the global agreement even before its details have been hammered out by late 2021.
“The EU Digital Levy, even if different from previous digital services taxes, threatens the work undertaken via the OECD/G20 process,” Biden’s administration wrote to EU diplomats this week in a position paper obtained by POLITICO. “We urge you to work with the European Council and the European Commission to delay the release of the EU Digital Levy proposal.”
https://www.politico.eu/article/global-tax-agreement-oecd-washington-eu-hurdles/ ....
It would appear the global tax deal is not as etched in stone as some had presumed. Many different perspectives are emerging as world leaders begin to grapple with the consequences of legislating these policies.
"We have a system that increasingly taxes work and subsidizes non work." --Milton Friedman (nobel prize winning economist)
Its common at the moment to support taxes on silicon valley. People want to attack US markets and capitalism. In the belief that progress and a brighter future will be created as a result.
I for one like Milton Friedman's ideas about increasing the incentive for people to work, save, invest and employ others. As a means of achieving economic growth, giving people more opportunities in life, elevating standard of living. I know I cite doors opening and standard of living often. Is it fair to say these areas are commonly shared themes. Its too bad these ideas are not more popular or widely disseminated atm. I think this defines ground that should be covered for the public to grasp basic fundamentals relating to things like global tax initiatives.
