The failure of the Biden administration in the United States to pass key Build Better legislation through the Senate this year – including its commitment to a minimum global tax rate of 15% – puts a question mark on the OECD corporation tax agreement.
The Organization for Economic Co-operation and Development on Monday released its detailed plans for how a global minimum enterprise rate would be enforced – and it’s apparently in full steam, with the vast majority of countries backing the process. But with uncertainty as to what U.S. President Joe Biden can get through the Senate, it’s unclear how that will play out yet.
Ironically, it was Biden’s election that gave OECD talks a final push to reach a draft deal last year. The draft deal, as agreed, matched Biden’s agenda to raise corporate taxes to help pay for a massive spending program.
The Build Back Better bill proposed a minimum of 15% for the so-called U.S. GILTI rate, in fact a minimum charge on the overseas income of U.S. companies, the same rate as proposed for the international minimum by the U.S. OECD agreement.
It is a belated agreement in the OECD negotiations that the minimum rate of 15 per cent must be set at exactly that level, as opposed to an earlier plan of “at least” 15 per cent which has led the minister to Finances Paschal Donohoe to include Ireland in the draft agreement.
The Finance Ministry said yesterday that Ireland welcomed so-called model rules published by the OECD – guides on how the new rules would be translated into national law – as the first important step of the new regime introduced in 2023 .
As the OECD document moved in the direction of expectations – and will be followed on Wednesday by a statement from the EU on how it would implement the plan – uncertainty over what the United States will do now hovers over the process. Since Biden does not have a Senate majority to pass the bill, it is not clear whether the legislation will be able to move forward in 2022.
The OECD contented itself with declaring on Monday that the “coexistence” of the new OECD rules with the existing or modified US GILTI regime would be considered in 2022.
The reaction of the European Commission will be closely watched: will it still seek to move forward with the 15 percent rate?
The OECD model rules and an EU directive, which will be released on Wednesday, are important technical milestones, IBEC chief economist Gerard Brady said. “But if the Build Back Better bill does not find new impetus at the start of the new year, the 2023 target for the entry into force of the OECD’s global tax reform agenda will look increasingly difficult. to reach.”
What is decided in the United States is vital, as it is home to many of the largest companies in the world. And since America is the main source of Irish FDI, it is particularly important for Ireland. It is in Ireland’s interest that the 15 percent also apply to the United States.
On a broader level, Biden’s issues pose a question mark against the entire OECD process, as it’s unclear whether a deal can survive a failure by Washington.