The House bill raises the possibility of a global agreement to curb corporate tax havens

The House bill raises the possibility of a global agreement to curb corporate tax havens

Many big details remain to be worked out before the international October deadline.

WASHINGTON – In anticipation of the biggest change in the global tax system in a century, the Democrats took a step forward this week as top Democrats plan to rewrite tax rules for multinational corporations that could allow the United States to join the rest. The world is trying to take action on tax havens.

It would be important for the Biden administration to pass a law that would lead to global negotiations aimed at limiting companies’ ability to reduce tax bills by setting up offices in the lower tax sector. The White House says this corporate strategy deprives economies of much-needed revenue.

Finance ministers around the world have been working for months to complete a plan to end what they describe as a race to the bottom of corporate taxation before the October deadline. More than 130 countries have agreed to adopt a global minimum tax of at least 15 percent and are discussing changes to how the tax levy is distributed so that large technology companies like Amazon and Facebook will have to pay taxes on their goods or services in those countries. They are sold even if they do not have a physical presence.

The House Democrats, as part of their plan to raise 2. 2.9 trillion to finance President Biden’s social security net package, proposed raising the tax rate on companies’ foreign earnings from 10.5 percent to 16.6 percent and levying taxes nationwide. The basis of the country. The plan will meet the initial commitment of global cooperation that is being voiced by the Organization for Economic Co-operation and Development.

Craig A., an international tax expert at Ernst & Young. “It’s more than just a tweak,” Hillier said. “There are proposed physical moves on how foreign income is taxed.”

However, the legislation passed by the House Democrats will in some ways be less revolutionary and less troubling for companies than the Biden administration envisioned.

The Treasury Department has demanded a 21 percent tax on corporate foreign earnings, a rate higher than the House’s proposal, or what finance ministers have so far agreed to support. Part of the reason for the push is that Mr. Biden has proposed raising the corporate tax rate in the U.S. from 21 percent to 28 percent, and administration officials say a higher global minimum tax would reduce incentives for U.S. companies to convert profits abroad.

House Democrats are offering a more generous boycott this year than the Treasury Department has proposed. Under his proposal, companies could exempt 5 percent of their foreign tangible assets, such as property and equipment, from the global minimum tax. The Biden administration wanted to remove the boycott, which currently allows the digging of 10 percent of the property.

Che-Ching Huang, executive director of the Center for Tax Law at New York University Law School, said retaining profits is “an incentive to find profits and investment offshore” and argued that the overall plan should be strengthened.

Other international measures being discussed under the plan drafted by the House Democrats will also be facilitated.

Under the White House plan, companies can claim more foreign tax credits than they do, said Monica Loving, who heads the international tax services group in the BDO US, adding that she also dropped plans to deny cuts to corporations headquartered in low-tax countries.

“It was a shocking reaction from the business community,” Ms. Loving said of the idea, which is called stopping harmful upheavals and halting low tax growth or shielding.

The Biden administration had expected that other countries would adopt the same mechanism as a way to penalize any country that seeks to be a haven for lower taxes. It is unknown at this time what he will do after leaving the post.

Treasury officials are working with their international counterparts to give a final touch to the global tax treaty so that the leaders of the group of 20 nations can sign it for the summit in Rome in late October. But many more questions need to be resolved in the next six weeks.

Ireland, Hungary and Estonia – three countries with tax rates below 15 per cent – have not yet joined the agreement. This has created a problem for the European Union, which needs to be signed by all its member countries for the tax change to take effect.

A senior Treasury official said last week that negotiators were still refining details on how to tax the most profitable companies and that European countries would withdraw their digital services tax, angering companies and lawmakers in the United States. They should also determine the exact rate of the global minimum tax. In addition to the United States, France is agitating to go above 15 percent.

Itai Grinberg and Rebecca Kysar, Treasury officials who are leading global negotiations for the United States, argued in an essay last week that at a rate of 21 percent, “jobs and investments can flourish in the United States.”

After a virtual meeting with her counterpart from the group of nations last week, Treasury Secretary Janet L. Yellen said the higher rates would “create funding for continued growth in critical investments in education, research and clean energy.”

More details about those plans are expected to be revealed in early and mid-October. However, it is unclear when and how the United States will implement that part of the agreement, known as Column 1, and concerns remain among business groups and Republicans that American companies will suffer new taxes.

The October deadline is self-imposed and can be postponed. The countries aim to fully activate the agreement by 2023, as it will take time for countries to make changes to their tax laws.

The House proposal, put forward by Democrats on the Roads and Resources Committee, could still make significant changes before the final vote. Eventually it will have to be prepared with a proposal from the Senate Democrats, who have not yet settled on tax rates for corporate foreign earnings.

Manal Corwin, a Treasury official in the Obama administration who heads the Washington National Tax Practice at KPMG, said rates could rise further despite pushbacks from companies.

Ms. Corwin said, “When these things need more revenue, you never know how they work.”

Any changes could come together with the adjustment of the House Democrats’ proposal for a domestic corporate tax rate. Although Mr. Biden demanded 28 percent, the House has proposed a graduate structure, with 18 percent for the smallest businesses and 26.5 percent for companies with a taxable income of more than 5 5 million.

Disclaimer: The views, suggestions, and opinions expressed here are the sole responsibility of the experts. No Top Markets News journalist was involved in the writing and production of this article.

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