How Joe Manchin Left a Global Tax Deal in Limbo

WASHINGTON – In June, months later Reluctant signing Ireland’s Finance Minister Treasury Secretary Janet L. Meeting with Yellen privately, Biden assured the administration that the deal would be held up.

Ms. Yellen assured Secretary Pascal Donohoe. All over the world.

It turns out that Ms. Yellen was overconfident. Last weekend, Senator Joe Manchin III, a Democrat from West Virginia, effectively scuttled the Biden administration’s tax agenda in Congress — at least for now — saying he could not immediately support the climate, energy and tax package. Democratic leadership. He also expressed deep doubts about the international tax treaty, which he previously indicated he could support, saying it would disadvantage American companies.

“We’re not going to go down that path abroad now, because other countries won’t follow suit, and we’ll put all our international institutions at risk, which will harm the U.S. economy.” Mr. Manchin told a West Virginia radio station Friday. “So we took that off the table.”

Mr. Inverse of Munch, Bed in the language used by Republican opponents The deal is a blow to Ms. Yellen, who spent months visiting more than 130 countries. It is a defeat for President Biden and Democratic leaders in the Senate. He has pushed hard to raise tax rates on many multinational corporations, which have led the world in efforts to avoid shifting jobs and income to lower their tax bills.

The deal would have brought about the biggest changes to global taxation in decades, including raising taxes on many large corporations and changing how tech companies are taxed. A two-pronged approach would enact countries The minimum tax is 15 percent So companies pay at least that much proportion of their global profits wherever they set up shop. It would allow governments to tax the world’s largest and most profitable companies based on where their goods and services were sold.

The failure to get agreement domestically creates a dilemma for the Biden administration and multinationals. Many countries may press forward to ratify the deal, but some countries may break the alliance now, leaving the door open to continuing to market themselves as corporate tax havens.

For now, the situation will allow companies like pharmaceutical giant AbbVie to continue to actively use global tax avoidance strategies. A report by the Senate Finance Committee this month found that the company made three-quarters of its sales to US customers in 2020, but reported only 1 percent of its revenue in the US for tax purposes – allowing it to lower its effective tax rate. That’s about half the 21 percent U.S. corporate income tax rate.

Not changing international tax laws could sow new uncertainty for big tech companies like Google and Amazon and other businesses that make money from consumers in countries where they don’t have many employees or physical offices. Part of the global deal is to give those companies certainty about which countries can tax them and how much they have to pay.

US’S REFUSAL TO PARTICIPATE Ms. In what would be a significant setback for Yellen, her role in getting the deal done was seen as her signature diplomatic feat. For months last year, he found his own political party refusing to heed his calls to countries around the world, from Ireland to India, on the merits of tax deals.

Mr. After Manchin’s comments, the Treasury Department said it was not abandoning the deal.

“The United States remains committed to finalizing a universal minimum tax,” Treasury spokesman Michael Kikugawa said in a statement. “Not finalizing this deal is critical to our economic strength and competitiveness, and we will continue to look at every avenue to get it done.”

Mr. Jared Bernstein, a member of Biden’s Council of Economic Advisers, told reporters at the White House on Monday that Mr.

“Any rumors of its demise are premature,” Mr. Bernstein said.

The United States’ path to ratifying the global accord has faced challenges from the start, given Republican opposition to parts of the plan and slim Democratic control of the Senate.

Under the deal, the U.S. must raise the tax rate companies pay on their foreign earnings from 10.5 percent to 15 percent. Congress should change how the tax is applied, levying it on a country-by-country basis, so that companies can’t lower their tax bills by seeking tax havens and “mixing” their tax rates.

The Biden administration hopes to implement those changes through its stalled Build Back Better Act or a smaller spending bill that Democrats hope will pass the budget process without requiring Republican support.

“Secretary Yellen and her team have always said they can get the changes they need,” Mr. Donohoe said. “Secretary Yellen reiterated the case for all their ongoing work in the House and Senate to secure the necessary votes for this change.”

Mrs. Yellen’s spokesman, Mr. Kikugawa characterized the tax debate as a conversation about “overcoming any challenges in our respective jurisdictions.”

Congress should amend tax treaties to give large U.S. multinationals the power to tax other countries based on where their products are sold. That legislation would require support from Republicans, who have shown no interest in voting for it.

US tech giants such as Google and Amazon have overwhelmingly backed the proposed tax changes as a way to end them. The complex thickness of European digital service lines Composed in recent years. If the deal unravels, they face a new wave of uncertainty.

The entire plan has been shaky in recent months amid continued opposition in the EU, delays on technical finesse and concerns over whether the US will actually join. Nevertheless, the EU and other countries are still likely to push ahead with the deal, which would leave the United States as an awkward outsider from last year’s renewed deal.

“With or without the United States, there seems to be a very significant chance that that architecture will persist,” said Manal Garvin, a Treasury official in the Obama administration who now heads the Washington national tax practice at KPMG. “I think once you get a few countries making those first moves, whether it’s the EU or some other important countries, you’ll see others follow very quickly.”

Based on the enforcement mechanism that the Treasury Department helped push reluctant countries into the deal, it poses risks for U.S. companies, including the possibility of higher tax bills. If the U.S. does not adopt a 15 percent minimum tax, U.S. companies with subsidiaries in participating countries may stop paying penalty taxes to those foreign governments.

“If Congress doesn’t pass it, it won’t stop the EU and Japan and others from moving forward in this area, and at that point, I think it’s in the U.S. interest for Congress to pass it, otherwise our companies could be affected by this enforcement policy as well,” he said in his recent job as the Treasury’s deputy assistant secretary for tax analysis. Kimberly Clausing, who left said at a Tax Policy Center event last month.

Barbara Angus, head of global tax policy at Ernst & Young, said failure by the US to comply with the deal would have “significant implications” for US companies.

“For the purpose of this framework to work, there really needs to be consistency and coordination,” said Ms. Angus, who is also the former chief tax adviser to the House Ways and Means Committee.

The Treasury Department could not provide an estimate of how much additional taxes U.S. companies would have to pay to foreign governments if the U.S. withdrew from the global accord. If fully implemented, the deal is expected to raise about $200 billion in tax revenue for the United States over a decade.

Pascal Saint-Amans, director of the Center for Tax Policy and Governance of the Organization for Economic Co-operation and Development, said he thought the EU would find a way to overcome opposition from member states, and once it ratifies the deal, pressure would be put on the US to join.

“Once the EU moves, the US has a choice: either they can move or they can leave the right to tax US multinationals to the Europeans,” Mr. Saint-Amens said in a text message. “Even Republicans won’t let this go.”

For now, Republican opposition to the tax deal is unlikely to budge. Lawmakers last year complained about being excluded from international negotiations and attacked Ms. Yellen for giving foreign countries new powers to tax American companies.

“No matter what the Biden administration pushes, the world must know that America is not going to capitulate economically to our foreign competitors by raising our global minimum tax rate in a deal that is unworkable or absolute or in our best interest,” he said. Rep. Kevin Brady of Texas is the top Republican on the Ways and Means Committee. “Congress will not ratify an OECD agreement that abdicates our constitutional authority to set tax rules or fails to protect core U.S. tax benefits.”

Mr. will retire at the end of his tenure. Brady added: “There is little political support for a deal that would reduce America’s competitiveness and hand over our tax base to foreign competitors.”