Global Corporate Tax Deal Spares US From Imposing New Tariffs On EU

Now that Ireland, Estonia and Hungary have agreed to the OECD’s global minimum corporate tax framework, trade tensions between the US and several EU members are finally beginning to recede.

As we reported on Friday, 136 OECD members tentatively agreed to adopt a 15% minimum corporate tax rate in exchange for partially re-allocate taxing rights for the largest most profitable companies (including American tech giants) to countries where the companies sell products and services, even if they don’t have a large physical in the country.

Since the new tax framework, once established, will grant EU members access to more tax revenue from American multinationals and also requires EU members to abandon controversial “digital service taxes”, the US has backed down from threats of imposing new tariffs on certain European goods in retaliation for the DST.

According to Reuters, transitional arrangements for removing DSTs “are being discussed expeditiously” between the EU and US, as Treasury officials told reporters during a conference call that talks over the details of these new arrangements were expected to eliminate the need for the US to consider more retaliatory tariffs against the EU.

The US Trade representative’s office has already prepared tariffs against imports from France, Britain, Italy, Spain, Austria, India and Turkey over their digital services taxes. But instead of being imposed, the office will put them on a shelf, where they can be brought back if the OECD deal doesn’t come together (members are aiming to have it implemented by 2023, a timeline that some analysts have dismissed as too ambitious).

Proposed US tariffs on French goods would slap 25% duties on cosmetics, handbags and other imports valued at some $1.3 billion annually, while Paris has threatened to retaliate against the US’s retaliation.

While the OECD tax deal was crafted in such a way that Treasury and the Trade Rep’s office believe it will pass the Congress with bipartisan support (since it’s an international tax treaty, it must be ratified by its signatories). But if there’s one thing Americans understand about Congress, it’s that nothing is guaranteed. the Treasury believes the first part of the deal – known as “Pillar One” – could be implemented in a few months.

Another Treasury official said that implementation for the reallocation of taxing rights, known as “Pillar 1” of the OECD agreement, could take several months to complete, and that the Treasury envisions that it will be done with bipartisan support.

Senior U.S. Senate Republicans have argued that this would require a new international tax treaty, which would require ratification with a two-thirds Senate majority. They told Treasury Secretary Janet Yellen in a letter that they were concerned that the Biden administration was considering circumventing the need to obtain the Senate’s authority to implement treaties.

The US Treasury official said that the Pillar 1 agreement was designed in a way to appeal to both parties, providing tax certainty for U.S. businesses without compromising U.S. revenue. The official said it was premature to consider passage without bipartisan support, but did not say whether a treaty would be required.

The Dems have a lot riding on this deal. Without a higher global minimum corporate tax rate, President Biden would risk driving American firms to relocate abroad with his plans to offset trillions of dollars in spending with tax hikes for corporations and the wealthy.