European Union Moves Ahead On Minimum Corporate Tax

"The European Union outlined its plans for implementing a global minimum-tax rate on corporate profits in 2023, and said that it is still confident the U.S. will be able to join it despite a recent setback in Congress.

The plan to impose a tax of at least 15% on the profits of large, international companies was agreed by 136 countries in early October and approved by President Biden and the other leaders of the Group of 20 leading economies later that month.

But the new rules must be turned into law by legislatures in all of those countries, which opens the way for delays and roadblocks. To streamline that process, the European Commission, the EU's executive arm, on Wednesday proposed a directive that would be adopted by all 27 of the bloc's members, rather than a series of separate, national laws.

The commission hopes that the directive will be agreed to by member governments by midyear, paving the way for the implementation of the new rules in 2023.

Three members -- Ireland, Estonia and Hungary -- have had reservations about a minimum-tax rate, and only agreed to the October settlement at the 11th hour. But the European commissioner for economy, Paolo Gentiloni, told reporters he believes the directive will receive their backing. "We will spare no effort to maintain this consensus," he said.

While the EU's announcement is another step closer to a global minimum-tax rate, the U.S. effort to implement the October agreement is stalled, and its prospects are uncertain going into 2022.

The tax increase on U.S.-based multinational corporations is wrapped inside broader legislation to address climate change, child care and poverty. Hopes for passage of the legislation suffered a serious blow this week when Sen. Joe Manchin (D., W.Va.) said he would oppose the centerpiece of President Biden's economic agenda as written.

However, the international tax proposals have been relatively uncontroversial among Democratic lawmakers, despite objections from businesses. Sen. Manchin cited other issues with the legislation in expressing his opposition and hasn't balked at the tax increases.

Democratic leaders will try to resurrect some version of the legislation early next year, and Biden administration officials have emphasized the importance of following through on the commitments the U.S. made in the global-tax negotiations.

Unlike European countries, the U.S. already has a minimum tax. The bill under consideration would raise the minimum rate to 15% from 10.5% and impose it on a per country basis, aligning it with the global agreement.

Even under the proposed changes, the U.S. system would have some differences from what other countries may adopt. The Organization for Economic Cooperation and Development -- which guides talks on overhauling the international tax system -- has said it would outline next year how the two systems can coexist.

Mr. Gentiloni said he believes the Biden administration will deliver on its October pledge.

"I'm quite confident that despite the difficulties we see in the legislative process in the U.S., we will have their support," he said. "The U.S. administration was absolutely crucial in bringing us to this decision."

The EU faces its own challenges in getting a final agreement on the new rules, not least the possibility that some of its members may withhold their assent to gain concessions on other, unrelated areas of disagreement.

Mr. Gentiloni said he couldn't exclude that possibility because it has happened before, but he was hopeful those precedents wouldn't be repeated, particularly since most members had signed up to the October agreement.

"There is no room for tit-for-tat in the way that we should work," Mr. Gentiloni said.

The EU's proposal is closely based on model rules for implementing the minimum tax that was published by the OECD on Monday.

The rules are intended to make it easier for the various governments to develop laws that are collectively coherent and avoid national quirks that could open fresh paths for tax avoidance.

Overall, the OECD estimates the new rules could give governments around the world additional revenue of $150 billion annually." [1]

1. World News: European Union Moves Ahead On Minimum Corporate Tax
Hannon, Paul; Rubin, Richard. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 23 Dec 2021: A.10.