TAX TAKE: OECD Tax Negotiations Get a Kick From Republicans
Last week saw the Organisation for Economic Cooperation and Development (OECD) release another batch of official documents from the Inclusive Framework (IF) on both Pillars comprising Administrative Guidance on the global anti-base erosion (GloBE) Model Rules, model treaty language and commentary on the subject to tax rule (STTR), guidance on the GloBE Information Return, and a consultation document on Amount B under Pillar One.
Two big wins for U.S. companies are the announcement of a delay in the imposition of the undertaxed profits rule (UTPR) and some relief for transferable tax credits, many of which were recently enacted under the Inflation Reduction Act (IRA). The Transitional UTPR Safe Harbor, set forth in the Administrative Guidance, exempts ultimate parent entities (UPEs) from foreign jurisdictions' imposition of the UTPR as long as the UPE's jurisdiction imposes a corporate tax rate of at least 20 percent. The Safe Harbor is in effect for fiscal years beginning on or before December 31, 2025, and ending before December 31, 2026 – effectively a one-year delay of the earlier agreed-upon effective date for the UTPR. And with respect to "marketable transferable credits," those taxpayers who sell (or could sell, but choose not to) the credit will be treated as having additional income, while taxpayers who buy the credit at a discount will be treated as having their tax expense reduced in the amount of the delta between the original value of the credit and the discounted price paid.
While the business community and Department of the Treasury were cheering these gains, by Wednesday it was clear that not everyone was celebrating. The House Committee on Ways and Means Tax Subcommittee hearing on the global minimum tax negotiations at the OECD highlighted deep partisan divisions on the issue and provided a few key takeaways.
First, Republicans see no signs of cooperation or consultation with House taxwriters on the administration's negotiating position on key policy issues. Testifying at the hearing, Treasury Deputy Assistant Secretary (International Tax Affairs) Michael Plowgian cited correspondence and other contacts, but Republicans were not mollified. They demanded proof – names and dates.
Second, Mr. Plowgian assured members that Treasury is working to convince Canada to join the OECD's agreement to postpone any digital services taxes (DSTs) for another year. Mr. Plowgian said Canada is "isolated on this issue" and warned that Canada's DST "would seriously undermine the Pillar One negotiations."
On a broader level, the final takeaway from the hearing may be the immutable fact that Congress must approve any changes to current tax law required to comply with the final OECD tax regime, and that will not happen anytime soon. The administration knows it is not possible with a House GOP majority, which points to a post-election showdown over this (and all the expiring provisions in the Tax Cuts and Jobs Act (TCJA)). #TaxTake
In the News
In Tax Notes, Jorge said statements by the IRS Commissioner on recent agency successes may be a way for it to gain congressional support to preserve funding. If lawmakers "see refunds moving faster, backlogs diminishing, IRS being responsive and moving faster and picking up the line - that has an impact," Jorge said.
Also in Tax Notes, Jorge commented on the Supreme Court's decision to hear the Moore case and the likelihood of congressional action. "Anything's possible," Jorge said. "But given current political dynamics … probably unlikely."
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