Yellen seeks European support for tax deal not approved by Congress

WASHINGTON – Treasury Secretary Janet Yellen wants to get the European Union to agree to a minimum global tax on large corporate profits, hoping to ease Poland’s objections to approving the plan at meetings next week.

But the greatest threat to the agreement’s future may be closer to home, in Congress, which has yet to approve the plan negotiated by Ms. Yellen.

Drafted after months of negotiations last year, the proposal for a minimum 15% tax on profits for large corporations won the support of 137 countries. Since the initial agreement, though, the economies of the United States and the European Union have so far been slow to enact laws implementing the plan, with Poland recently vetoing an EU measure to implement it by the end of 2023.

A global minimum tax — along with a parallel push to give countries the ability to collect taxes from corporations based on business revenue generated by their citizens — would amount to an overhaul of international tax rules for more than a century. The approval of the European Union and the United States could help induce other countries to terminate their parts of the agreement.

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Solidifying the tax deal will be a central achievement for Ms Yellen, who called it a critical step toward halting multinational corporations’ efforts to avoid taxes. Failure would not only pose a challenge to US economic leadership, but could make it difficult for countries to increase revenue and leave US companies more vulnerable to targeted taxes.

Ms Yellen is scheduled to travel to Warsaw, as well as to Brussels, before heading to Bonn, Germany for a meeting of finance ministers from the Group of Seven major nations. She recently said she expects Poland to soon drop its objections to the plan, opening the door to EU approval and possibly allaying concerns in Congress that the United States will raise its taxes but other countries will not follow suit.

“I really expect the European Union to pass this into law this spring and I think it will be a good example for the United States to show that a very important part of economic activity in the world has complied and is a good example,” she told the Wall Street Journal last week.

Poland has argued against moving ahead with implementing minimum taxes, a priority for the US, without making further progress on the other element of the agreement: a reset of tax authorities that will pay tech companies more taxes in Europe. Ms Yellen is expected to make the case to senior Polish officials that minimal taxes will bring economic benefits to Poland, according to a person familiar with the negotiations.

Poland is currently the only country in the 27-nation European Union to have halted the deal, which requires unanimous support. Under a simplified process, the minimum tax will come into effect once it is agreed upon by each EU country.

Yet even as Yellen prepares to persuade leaders in Europe to move forward with the deal, she and the Biden administration have struggled to persuade lawmakers in their political party in Washington to move forward. Democrats have long planned to include a global minimum tax in a broader economic package that would increase taxes and shower climate programs, health care and education.

Senator Joe Manchin (D., W.Va.) opposed President Biden’s education, health care, and climate package, which included global minimum taxes.


picture:

Ting Shen/Bloomberg News

But those plans faltered, as Senator Joe Manchin (D.) opposed. Democrats, who need Manchin’s support to legislate in the 50-50 Senate, have struggled for months to revive the broader bill, as some Democrats fear they will fail to pass anything before the midterm elections. .

Democrats on their own believe they have enough political support to agree to a minimum global tax deal, but they haven’t yet moved to break it down into smaller legislation. Mr. Manchin has repeatedly emphasized that US tax law must be globally competitive, although European approval of a global minimum tax may not speed up Senate consideration.

“Even as the river flows, tree trunks can stack in such a way that nothing falls downstream. We must step back from the standoff,” said Senator John Hickenlooper (De, Colo).

As talks began about the parameters of an international tax agreement during the Trump administration, Republicans said the Biden administration had not consulted them sufficiently about the deal and the impact it could have on American businesses. They have raised concerns about whether parts of the deal will eventually cost US companies more taxes while not generating net revenue for the US government.

Policymakers still have details of the tax deal to put in place. Some US companies have raised concerns about how the global minimum tax will affect the tax credits they receive for corporate research and renewable energy.

Under the international agreement, US-based multinationals that pay less than 15% in US taxes due to credits they receive may face additional taxes in other countries in which they operate. This design aims to ensure that there is an execution mechanism for the 15% floor.

Lilly Batchelder, the Treasury’s chief tax policy officer, said at a recent DC bar conference that she was confident that US tax credits for low-income housing, investment in low-income areas and renewable energy would be preserved under the agreement. . She said US officials are working with the Organization for Economic Co-operation and Development to clarify.

Beijing and Washington have been at odds over issues from technology to human rights and territorial claims, but a recent global tax deal shows how the two rivals can cooperate, too. The Wall Street Journal looks at the next step in US-China relations. Photomontage: Sharon Shee

Negotiators are also still working through a series of details around what is known as Pillar One, the proposed new rules for shifting tax power away from countries where companies are based and their intellectual property and toward places where they generate revenue from consumers. This is really important for European countries frustrated by their inability to tax US-based tech companies, but negotiations have been slower than the minimum tax.

Currently, companies pay taxes based in part on where they are physically located and where they generate profits. And in the digital age, that has become disconnected from consumer sites, to the frustration of European countries that see Apple company ,

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And other American technology companies that are profiting in their markets.

Key details of the talks cover listed and excluded companies, how disputes between states are resolved and how some calculations are made that determine how much tax rights will be reallocated.

“We are one of 137 jurisdictions at the table, and there are still a number of political and technical issues to be resolved,” Michael Balujian, a Treasury official working on the negotiations, said on a separate committee of the DC Bar Association.

write to Andrew Duehren at andrew.duehren@wsj.com and Richard Rubin at richard.rubin@wsj.com

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