After reluctantly signing on to a global tax agreement brokered by the United States, Ireland's finance minister met with Treasury Secretary Janet L.
The minister was reassured that the administration would be able to get enough votes in Congress to make sure that the United States was in compliance with the pact, which was aimed at cracking down on companies evading taxes by shifting jobs and profits around the world.
Ms. Yellen was too confident. Last week, Senator Joe Manchin III, Democrat of West Virginia, effectively scuttled the Biden administration's tax agenda in Congress by saying he could not immediately support a climate, energy and tax package he had spent months negotiating with the Democratic leadership. He said the international tax deal would make American companies less competitive.
Mr. Manchin told a West Virginia radio station that he wouldn't go down that path because other countries wouldn't follow. We removed that from the table.
The reversal by Mr. Manchin was couched in the language used by Republican opponents of the deal. President Biden and the Democrats in the Senate wanted to raise tax rates on multinational corporations in order to stop them from shifting jobs and income to low tax countries.
The most sweeping changes to global taxation in decades would have been ushered in by the agreement. Companies that set up shop in a country that imposes a minimum tax of 15 percent on their global profits will pay more in taxes there. It would allow governments to tax the world's largest and most profitable companies based on where they sell their goods and services.
Both the Biden administration and multinational corporations are affected by failure to get agreement at home. Some countries may now be able to hold out, fracturing the coalition and potentially opening the door for some countries to continue marketing themselves as tax havens.
The situation will allow for the continued aggressive use of tax avoidance strategies by companies. A Senate Finance Committee report found that the company made three-quarters of its sales to American customers in 2020, yet reported only 1 percent of its income in the United States for tax purposes.
Not changing international tax laws could cause new uncertainty for large tech companies that earn money from consumers in countries where they don't have many employees or physical offices. The global agreement was supposed to give companies more certainty on which countries would tax them and how much.
It would be a huge blow for Ms. Yellen, whose role in getting the deal done was seen as her signature diplomatic achievement. She spent months lobbying nations around the world on the merits of the tax agreement, only to have her own political party reject her calls to join.
The Treasury Department didn't give up on the agreement after Mr. Manchin's comments.
Michael Kikukawa, a Treasury spokesman, said in a statement that the United States remained committed to finishing a global minimum tax. It is too important for our economic strength and competitiveness to not finalize this agreement.
Republican opposition to parts of the plan and Democrats' slim control of the Senate made it difficult for the US to approve the global pact.
The United States would need to raise the tax rate on foreign earnings to 15 percent to comply with the agreement. Congress would need to change the way the tax was applied so that companies wouldn't be able to lower their tax bills by using tax havens.
Democrats hoped to pass a smaller spending bill through a budget process that would not require any Republican support in order to get those changes enacted.
In an interview in June, Mr. Donohoe said that Secretary Yellen and her team had always made the case that they would be able to secure the changes they needed.
To give other nations the power to tax large U.S. multinational companies based on where their products were sold, Congress would have to revise tax treaties. Republicans have shown no inclination to vote for it.
European digital services taxes have been enacted in recent years, and the proposed tax changes are intended to end them. They will be faced with a new wave of uncertainty if the agreement falls apart.
Concerns about whether the United States would actually join, as well as continued opposition in the European Union, have caused the project to be on shaky ground. It is possible that the European Union and other countries will still move ahead with the agreement, leaving the United States as an odd outlier.
Manal Corwin, a Treasury official in the Obama administration who now heads the Washington national tax practice at KPMG, said that there is a chance that the architecture will be stood up. You will see others follow after a few countries that make the first moves.
The Treasury Department helped create an enforcement mechanism that could cause tax bills to go up in the U.S. If the United States doesn't adopt a 15 percent minimum tax, American companies with subsidiaries in participating countries will have to pay penalties to foreign governments.
The European Union and Japan will move forward in this area if Congress doesn't adopt it.
A failure by the US to comply with the deal would have significant implications for American companies.
There needs to be consistency and coordination in order for this framework to work.
If the United States were left out of the global agreement, the Treasury Department could not give an estimate of how much tax American companies would have to pay. The agreement is expected to raise $200 billion of tax revenue over the next decade.
The director of the center for tax policy and administration at the Organization for Economic Cooperation and Development thinks that the European Union will find a way to move beyond member state opposition and that the United States will come under pressure to join once that is done.
If the E.U. moves, the U.S. will either leave the taxing right on U.S. multinational enterprises to the Europeans or move them to another country. The Republicans would not allow this to happen.
Republican opposition to the tax deal isn't likely to change soon. The last year of being excluded from the international negotiations was the subject of complaints by lawmakers.
Despite what the Biden administration is pushing, the U.S. is not going to surrender economically to our foreign competitors by raising our global minimum tax rate. The O.E.C.D. deal will not be approved by Congress unless it protects U.S. tax incentives.
Mr. Brady said there was little political support for an agreement that would make the U.S. less competitive.
All Rights Reserved © 2024
