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Federal Tax

International Tax Experts Pan Biden’s Pillar Two Plan

Jeff Carlson  

· 5 minute read

Jeff Carlson  

· 5 minute read

During a House Ways and Means Tax Subcommittee hearing July 19, a panel of international tax lawyers and global experts took issue with President Biden’s plans to engage with the Organization for Economic Co-operation and Development’s (OECD) global minimum tax, or Pillar Two, which calls for a minimum effective corporate tax rate of 15% on multinational enterprises.

Tax Subcommittee Chairman Mike Kelly, Republican of Pennsylvania, kicked off the hearing by berating the Administration for its dealings with the OECD.

“With active encouragement from the Biden Treasury Department, the OECD in its Pillar Two agreement failed to recognize our pioneering global minimum tax as a qualifying tax,” he said. “Instead, the agreement they came back with is so inconsistent with our tax laws that it would tilt the playing field in favor of foreign firms.”

Indeed, the U.S. stands to lose over $120 billion in tax revenues under the OECD global minimum tax—known as Pillar Two—negotiated by the Biden Administration, according to an analysis by the Joint Committee on Taxation (JCT).

The JCT analysis provides five alternative scenarios against a baseline assuming nearly 50 countries (including all EU countries) have already enacted Pillar Two.

Scenario 1: The rest of world enacts Pillar Two in 2025; U.S. does not enact

Scenario 2: The rest of the world enacts Pillar Two in 2025; U.S. enacts Pillar Two in 2025

Scenario 3: The rest of the world does not enact Pillar Two; U.S. does not either

Scenario 4: The rest of world does not enact Pillar Two

Scenario 5: The U.S. enacts Pillar Two in 2025 (without and with implementation of the extraterritorial Undertaxed Profits Rule, UTPR)

Adam Michel, Director of Tax Policy Studies, CATO Institute, told lawmakers that the OECD has proven it “no longer serves the interests of the United States” and has abandoned its founding mission to promote international economic growth. “Therefore, Congress should withdraw from and stop financially supporting the OECD and reform our domestic tax laws,” he said.

Moreover, Michel said that to benefit American workers and undercut the OECD project by making the United States a more attractive place to do business, Congress should lower the corporate tax to the OECD and Biden Administration’s agreed-upon rate of 15% and make full expensing for all new U.S. investments permanent, including structures.

“Rather than adopting the OECD foreign tax rules, Congress should finish converting the U.S. corporate tax to a full territorial system that entirely disregards both foreign profits and foreign taxes,” said Michel.

National Foreign Trade Council’s Anne Gordon stated that it “is vital to the health” of U.S. enterprises and to their continuing ability to contribute to the U.S. economy that they be free from discriminatory foreign taxes, double taxation, and other non-tax barriers to the flow of capital that impede full participation in the international marketplace.

“On balance, the work of the Inclusive Framework on Pillars One and Two fails to achieve this in several respects, and in too many instances specifically harms the competitiveness of American businesses,” she said.

David M. Schizer, Dean of Columbia Law School told committee members that taxes must be imposed by Congress, not the President. Secondly, the tax policy of the United States should be set by the United States, not by other countries.

“Unfortunately, in joining the Pillar Two agreement in October 2021, the Biden Administration has strayed from both of these simple principles,” he said. “Proceeding without congressional approval, they have given other countries significant influence over our tax system.”

 

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