2024 and the global minimum tax

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Jul 24, 2023 View in browser   By Benjamin Guggenheim Presented by TAXES AND GLOBALISM: It’s difficult to overstate just how influential the 2024 elections will be over U.S. tax policy for years to come. Whichever party gains the most power in Congress and the White House will have the biggest say over how to reckon with the trillions of dollars’ worth of Trump-era tax cuts that are set to expire in 2025. But besides determining the trajectory for income tax rates, estate taxes and family relief like the Child Tax Credit, among many other items, the 2024 elections will likely also have huge consequences for the international effort to stop multinational companies from shifting their profits to different countries to avoid taxes. The so-called Pillar Two of the project, which is spearheaded by the OECD in Paris and would impose a 15 percent global minimum tax, was agreed to by more than 130 countries in 2021 and is on the verge of implementation in several jurisdictions around the world. The thing is, however, that Republicans detest the global tax and see the framework as a revenue grab by foreign countries that was unconstitutionally negotiated by Treasury Secretary Janet Yellen without any input from Congress. George Callas of Arnold Ventures, a former senior tax counsel for the House Ways and Means Republicans, put it this way after a committee hearing last week on the topic: “I still find it a surreal but inescapable conclusion that an American executive branch colluded with foreign governments to pressure the American legislative branch to raise taxes on American companies.” Republicans have just in the last few months proposed retaliatory measures against the global minimum tax, but whether they can stop the project’s momentum will depend largely on who controls Congress and, most importantly, the presidency come 2025. BACK IN A MOMENT: And welcome to the last week Congress is in before its scheduled August recess. We wonder how that GOP tax package is working out over ultimatums from members of the SALT caucus. Also, you should take a peek at our Brian Faler’s article from Friday on how Treasury is reconsidering foreign tax credit regulations that have been heavily criticized by the business community. What are we missing? Email: bfaler@politico.com, bguggenheim@politico.com and teckert@politico.com. Or Twitter: @tobyeckert, @brian_faler, @ben_guggenheim, @POLITICOPro and @Morning_Tax.   A message from Consumer Brands Association: New taxes in the form of tariffs on tin mill steel could substantially increase prices for canned food and household essentials and jeopardize nearly 40,000 U.S. food and can manufacturing jobs. More expensive canned food will impact vulnerable consumers and those who rely on food assistance programs and food banks the hardest. The Biden administration must reject these tariffs. Learn more.   Want to receive this newsletter every weekday? Subscribe to POLITICO Pro. You’ll also receive daily policy news and other intelligence you need to act on the day’s biggest stories. SETTING THE STAGE: Republicans have given every indication that they mean serious businesses in the fight over the global minimum tax, having introduced two tax bills this Congress that would aggressively retaliate against any country that adopts the OECD framework and its enforcement mechanism — a so-called undertaxed profits rule (UTPR) that would allow a foreign country to “tax up” an American multinational to 15 percent if it has an effective rate of less than that. The first retaliatory measure GOP tax writers introduced would raise taxes on the U.S. income of companies and wealthy investors from UTPR-wielding countries by 5 percentage points each year, up to a whopping 20 percent penalty levy. The second, which was introduced last week by Ways and Means member Ron Estes (R-Kan.), would leverage an existing 10 percent minimum tax under the TCJA — expanding the levy and applying it to a much wider swath of companies that are connected to a country that has adopted the OECD framework. Of course, the bills don’t have a chance of passing Congress with Democrat control of the Senate, but they send a strong message to OECD officials overseas: If Republicans gain power in 2024, they’re prepared to go to war with any country that enacts “extraterritorial taxes” on American companies. Indeed, the OECD released new guidance last week that delays the UTPR until at least 2026, which was interpreted by several observers as a strategic calculation to give the U.S., specifically, breathing room to enact the global minimum tax as a part of a larger tax package in 2025. And here’s, perhaps, the most interesting part: While Republicans couldn’t enact those specific retaliatory measures without full control of Congress and the White House, a Republican president could wield a never-before used part of the tax code — which dates back to a tax spat with France in the 1930s — that allows the executive to unilaterally double taxes on citizens and companies from countries that impose “discriminatory or territorial taxes” on the U.S. THAT OTHER PILLAR: Meanwhile, the other major pillar of the OECD’s international tax framework, which would fundamentally change taxing rights over the digital economy and Big Tech companies like Google and Meta, has run into a hiccup presented, no less, by a U.S. ally: Canada. The OECD announced recently that it had secured promises from more than 130 countries to delay unilateral digital service taxes until the end of 2024 so that stakeholders can continue ironing out the deal. However, Canada insisted it would start slapping digital taxes on Big Tech at the beginning of next year. The latest news is that there’s some hope yet for a settlement. As our Doug Palmer reported, Deputy Canadian Minister Chrystia Freeland said Friday that a deal could be struck to alleviate the U.S.’s concerns: "I think there is a possibility of a path forward that works for everybody,” Freeland said. IRS UNDER MICROSCOPE: IRS Commissioner Danny Werfel hasn’t been long in his job but the agency is already grappling with controversies on multiple fronts, including testimony from two IRS whistleblowers before Congress last week on alleged interference in the Hunter Biden tax probe. While Werfel, under pressure from Republicans, did send out a memo earlier this month reminding employees of their right to make protected disclosures to Congress, Finance Committee member and co-founder of the Senate Whistleblower Protection Caucus Chuck Grassley (R-Iowa) said on Sunday that the commissioner’s stewardship of the agency is not proving sufficient in light of the allegations. “Director Werfel needs to start running the IRS instead of the IRS running him,” Grassley said in a tweet. “Protect whistleblowers instead of turning a blind eye to retaliation.” Noting that the two whistleblowers said they were removed from the Hunter Biden investigation after they came forward, Grassley also argued that Werfel should meet with the whistleblowers and put them back in the positions they had before. The IRS did not respond to a request for comment by press time.   JOIN 7/26 FOR A TALK ON THE NEW ENERGY ECONOMY: Join POLITICO's lively discussion, "Powering a Clean Energy Economy," on July 26 at 5:15 PM ET. We'll explore the effectiveness of consumer-targeted policies to boost sustainability and create clean energy jobs. How are the Inflation Reduction Act's provisions faring? Which strategies truly sway consumer behavior? How are advances in technology shaking things up? And, what's the future for energy consumption reduction? Hear from featured speaker, Rep. Debbie Dingell (D-Mich.), among other experts. Don't miss this insightful event — register today and be part of the conversation driving America's clean energy future! REGISTER NOW.     Around the World Reuters: “Analysis: Chile's battered leftist leader Boric grapples with thorny tax reform” Deadline: “Film, TV & Video Game Tax Credits Generated $3.2 Billion Worth Of Extra Spending In France From 2017 to 2021 — Study” The Korea Herald: “Looming Vietnamese tax revision rattles Korean textile firms”   A message from Consumer Brands Association:   Around the Nation WSJ: “The Apple Tax Play That Keeps Uncle Sam at Bay” CBS: “Massachusetts considers tax on streaming companies to boost public access stations” The Orange County Register: “California Republicans want the state to end tax on health savings plans”   JOIN 7/27 FOR A TALK ON WOMEN LEADERS IN THE NEW WORKPLACE: In the wake of the pandemic, U.S. lawmakers saw a unique opportunity to address the current childcare system, which has become increasingly unaffordable for millions of Americans, but the initial proposals went nowhere. With the launch of the Congressional Bipartisan Affordable Childcare Caucus in May, there may be a path to make childcare more affordable in the U.S. Join Women Rule on July 27 to hear from featured speakers Rep. Ro Khanna (D-Calif.), Rep. Nancy Mace (R-S.C.), and Reshma Saujani, Founder & CEO of Moms First and Founder of Girls Who Code, on ways to reach a bipartisan solution on this timely issue for women in the workplace. REGISTER HERE.     Also Worth Your Time The Boston Globe: “After fighting to obtain Trump’s taxes, Richard Neal is on the other side of an IRS battle involving Hunter Biden” Accounting Today: “IRS warns of summertime tax scams” WSJ: “A Retirement Tax Break That Ends the Fear of Outliving Your 401(k)” Did you know? A sea otter off the coast of Santa Cruz, Calif., with a penchant for stealing surf boards has been eluding capture by wildlife officials.   A message from Consumer Brands Association: Tariffs on tin mill steel are a tax on consumers, causing prices to soar on canned food and household essentials that vulnerable communities rely on. The last thing American families need is another increase in prices that these tariffs would bring in an already tough inflation environment. This “can tax” will also endanger nearly 40,000 jobs in the food and can manufacturing industries across the nation. We urge the Biden Administration to invest in domestic tin mill steel manufacturing without harming consumers and risking well-paying jobs. Learn more.     Follow us on Twitter Toby Eckert @tobyeckert Bernie Becker @berniebecker3 Brian Faler @brian_faler Benjamin Guggenheim @ben_guggenheim   Follow us

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