Global Tax Deal Sets Rules for U.S. Companies

"WASHINGTON -- The U.S. prodded other major countries to agree to a coordinated global corporate tax increase. Now, international officials are moving ahead with their tax increases while giving U.S. companies a temporary break from some tax hikes in hopes of prompting the U.S. to implement the deal.

The Organization for Economic Cooperation and Development (OECD) on Thursday spelled out how the U.S. tax system will interact with the minimum taxes being implemented in other countries. The rules offer a partial reprieve for U.S. companies through 2025. Still, U.S. companies are likely to face higher taxes abroad.

The U.S. in 2021 won international backing for the global minimum tax rate. But the Biden administration couldn't push the plan through Congress, which hasn't passed legislation ensuring that U.S. companies will pay the rate of at least 15% in each of the nations in which they operate.

The OECD said it plans to reassess the situation before the end of 2025. U.S. lawmakers expect to take up significant tax legislation that year, when key pieces of tax law are set to expire, but they expect little to happen before that.

"This likely reflects the reality that other countries are only going to be so tolerant of our delayed implementation," said Rebecca Kysar, a law professor at Fordham University who helped negotiate the deal when she was a Treasury Department official.

Under the international agreement negotiated by Treasury Secretary Janet Yellen, nations agreed to adopt the 15% minimum tax on their home-country companies, applied in each jurisdiction where those companies operate.

The system was designed with built-in backstops that would work once a critical mass of nations moved ahead. If a country didn't impose the 15% tax on its own companies, other countries would be able to tax those companies. The OECD rules offer U.S. companies some cushion on part of those backstops but not all of them.

The U.S. has two corporate minimum taxes, but the current U.S. tax regime doesn't fit neatly with the coordinated system other countries are implementing. It raises the prospect U.S. companies will face higher taxes than their foreign competitors -- and that the money would go to foreign governments.

Anne Gordon of the National Foreign Trade Council, which represents large U.S. companies, said some concerns remain for companies even after the OECD guidance.

Ms. Yellen and administration officials pushed Congress to pass the 15% minimum international tax when Democrats controlled the House and Senate. But that effort fell short, with no support from Republicans and opposition from Sen. Joe Manchin (D., W.Va.).

One of Mr. Manchin's concerns was that the U.S. would raise its taxes and other countries wouldn't. For a while, the agreement was stalled in the EU. But now, many large nations are moving ahead to implement the new tax regime.

The new OECD rules spell out how an existing 10.5% minimum tax on U.S. companies' foreign income, known as the levy on Global Intangible Low Taxed Income  (GILTI), interacts with other countries' new taxes.

The more that U.S. companies can count GILTI payments toward their taxes in other countries, the less they will owe to other countries.

Thursday's rules offer a relatively generous, but temporary, version of those calculations, Ms. Kysar said.” [1]

1.  U.S. News: Global Tax Deal Sets Rules for U.S. Companies
Rubin, Richard.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 03 Feb 2023: A.2.