Big divides on global tax deal

Presented by The Coalition to Preserve American Jobs: Delivered every Monday by 10 a.m., Weekly Tax examines the latest news in tax politics and policy.
May 28, 2024 View in browser
 
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By Bernie Becker

Presented by The Coalition to Preserve American Jobs

A PILLAR ONE BLAME GAME: There are a couple huge impediments to one part of the global tax deal — China and India, according to Treasury Secretary Janet Yellen.

Those two countries account for more than a third of the world’s population, and they’ve also basically removed themselves from the discussions over the first pillar of the global tax agreement, Yellen said Friday while at a meeting of G-7 finance leaders in Italy.

Yellen added that the U.S. is “actively engaged” in Pillar One talks and wants them to be successful by an upcoming end-of-June deadline, even as the Biden administration hasn't gotten Congress to budge on addressing the issue due to GOP opposition.

"We're committed to doing everything we possibly can to make it work,” Yellen said, via Reuters.

Still, it looks increasingly like that will be just the latest deadline that will slip for Pillar One, as Giancarlo Giorgetti, Italy’s finance minister, said last week.

Like Yellen, Giorgetti cast some blame for the current situation on China and India, pointing to “technical reservations” from those two governments, as our Gregorio Sorgi noted.

Pillar One of the global tax deal would revamp which countries get to tax the profits of large multinational corporations, seeking to give more rights to places where those companies do business — instead of where their offices are located.

Officials at the Organization for Economic Cooperation and Development — which spearheaded negotiations over the global tax deal — had hoped to have a signing ceremony for the agreement by the end of next month, after what now have been years of negotiations.

MORE ON THIS in just a moment, but thanks for joining us again for Weekly Tax. Got to say — hard not to love Bill Walton.

Well, that’s certainly an idea: Today marks 37 years since an 18-year old (West) German aviator named Mathias Rust made an unauthorized flight from Helsinki to Moscow, eventually landing next to Red Square. (Rust served 14 months in prison before being pardoned, though he also raised some serious questions about the Soviet air defense systems.)

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A message from The Coalition to Preserve American Jobs:

It shouldn’t take the IRS years to process a small business tax refund claim. Yet, over one million small business owners who filed for the COVID Employee Retention Credit (ERC) are stuck in the IRS’s backlog awaiting processing or even payment on their claims. Even worse, the IRS imposed a moratorium on processing new ERC claims, slowing down the agency’s work even further. Small businesses deserve better. It's time to lift the moratorium.

 

SO NOW WHAT? If Pillar One negotiations continue to stall, that could eventually lead to a number of countries implementing unilateral digital services taxes. In fact, the U.S. has an agreement with a string of countries to delay any DSTs until June 30.

So you might think that the Biden administration would especially be feeling the pressure of that upcoming deadline. But in a lot of ways, the current problems with China and India might prove to be at the very least politically convenient for Yellen and Treasury.

In short, that’s because it could buy more time — during a presidential election year, no less — for what have long been tricky negotiations over Pillar One, which could also further push off implementation of those unilateral DST’s.

Both Yellen and Giorgetti said during last week’s meetings that transfer pricing issues are driving the divide in Pillar One talks. (Transfer pricing essentially is the terms by which goods and services are exchanged between related companies, like a parent and a subsidiary.)

Yellen specifically mentioned Amount B, part of the Pillar One agreement that’s meant to simplify transfer pricing standards, as an area where the U.S. and India aren’t seeing eye-to-eye.

The Treasury secretary also has brought up transfer pricing in recent hearings with the tax committees, noting the concerns that lawmakers have had in that area.

The Biden administration is “trying to get tax certainty for American companies that face significant and costly disputes about transfer pricing and other matters,” Yellen told the Senate Finance Committee in March.

“There would be substantial benefits to American businesses from this agreement if we conclude it.”

But for the most part, GOP tax writers have told Yellen during those hearings how little they think of both pillars of the global tax deal, the second of which would install a global minimum tax on corporations.

And to be blunt about it, there have long been very serious doubts in Washington tax circles about whether Congress could or would implement any Pillar One deal, which is why the current hang-ups might not be the worst development for the administration.

Certainly, the chances of lawmakers backing either pillar currently appear to be next to nil, given the depth of GOP opposition to the global deal — something that negotiators from other countries well know.

For their part, Democrats failed to beef up America’s existing minimum tax when they had full control in Washington during the first two years of President Joe Biden’s term. And to be honest, the Biden administration and other Democrats have long seemed more invested in Pillar Two when it comes to the global tax deal.

YOU’VE GOT MORE TIME: The Tax Reform Project, a new initiative launched this year that seeks more practitioner input in the crafting of tax policies, will now be accepting submissions through the end of July.

The initiative has invited practitioners to submit their own ideas for improving the tax system, with the original deadline being May 27. The extension of that timeline comes as Patrick Oakford, previously the principal deputy assistant secretary for policy at the Labor Department, has come to run the Tax Reform Project, which is housed at Yale Law School.

Natasha Sarin, a Yale law professor and former senior official in the Biden Treasury, and former Treasury Secretary Larry Summers are among the experts who launched the project back in the winter.

Sarin previously told Weekly Tax that she hopes the initiative will help influence next year’s big negotiations over the expiring provisions from the GOP’s 2017 tax law, by giving insights on how proposals can be simpler and more workable.

 

A message from The Coalition to Preserve American Jobs:

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Around the World

Bloomberg: “Sunak Offers Pensioners Tax Cut as Tory Poll Shows Reform Threat.”

BBC: “Labour's Rachel Reeves rules out increasing income tax or NI.”

Reuters: “Argentina's Milei pledges 'significant' tax cuts if congress approves reforms.”

Around the Nation

Chicago Tribune: “Illinois Senate approves state budget with $750 million in tax hikes, measure now moves to the House.”

KATU: “Portland transportation leaders 'relieved' voters renewed four-year gas tax.”

Nebraska Public Media: “Pillen urges spending cuts, ending sales tax exemptions to reduce property taxes.”

Mississippi Today: “Speaker White eyes major cuts to Mississippi grocery, income taxes for 2025 session.”

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On The Calendar

It’s a recess week, everybody.

Let Morning Tax know about your future events: taxcalendar@politicopro.com.

Did you know?

The rented plane that Mathias Rust used in his Moscow flight is on display at the German Museum of Technology in Berlin.

 

A message from The Coalition to Preserve American Jobs:

According to a recent nationwide survey of small business owners, 68% of those who filed for the ERC stated their business operations have been and continue to be negatively impacted by the amount of time it took the IRS to pay their claims.

It’s no wonder why. Four years after the ERC was passed by Congress, over one million employers who filed remain stuck in the IRS’s backlog. Instead of addressing the logjam, the IRS imposed a moratorium on the processing of new ERC claims, delaying processing times even further. If the agency continues to process claims at the current rate, it could take up to ten years for the last business to receive its ERC funds — over a decade after the start of the pandemic.

Small businesses can't afford to wait. Tell the IRS that businesses deserve the relief they’re rightly owed. Visit ERCSavesJobs.com/take-action/

 
 

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