Joe Biden’s plans to reform the international tax system face growing opposition from his Republican opposition, who have called the proposals “crazy” and threaten to block the passage of the landmark agreement in the United States.
Treasury Secretary Janet Yellen has led the Biden administration’s attempts to negotiate a comprehensive deal on how businesses are taxed, which comes amid a broader push to reform corporate taxes in the US.
Those efforts were rewarded over the weekend when the G7 group of rich nations endorsed a global minimum rate of at least 15% and agreed that countries should be able to tax some of the profits made by large companies based on the income they generate in that country. , rather than where they are based for tax purposes.
But as Biden heads to London for the G7 summit, the US-led plan faces stiff opposition in Washington, where high-ranking Republicans are already lining up to kill the deal. Former Trump administration economic adviser Kevin Hassett said Yahoo Finance Tuesday “is not going to happen.”
With the 100-seat Senate evenly divided between Democrats and Republicans, Biden will struggle to pass any changes to international tax treaties with bipartisan support and may be forced to try to pass a bill with only Democratic votes.
Pat Toomey, a Republican senator from Pennsylvania, has called the global minimum tax “crazy.”
“Certainly the fact that they had to try to persuade all these other countries to make sure they raise their taxes is a confession of the damage that we are doing to our own country,” Toomey said. “They certainly would not have the votes to approve a treaty of this type that they are contemplating.”
Republican Senator John Barrasso of Wyoming, chairman of the Senate Republican Conference, called the plan “anti-competitive, anti-American, and damaging to us as we try to keep growing the economy as we emerge from a pandemic.”
Hassett told Yahoo Finance: “The G7 has no authority on this. For the EU to do something, it basically needs unanimity, and there is no way to rush that.
“For the United States, there is a great doubt if it would also be approved, because if you analyze it, basically what we are doing is granting foreign countries a hunting license to obtain income from American companies that they could not obtain before.”
The deal comes as the Biden administration tries to raise US corporate taxes from 21% to 28%. An increase in global rates is seen as key to ensuring that US companies do not choose to relocate their operations abroad when rates rise.
In return, the G7 countries agreed to end taxes on digital services by US tech companies that have prompted threats from the Biden administration to impose retaliatory tariffs on a variety of products from countries such as the UK, Italy. , Spain, Turkey and India.
International negotiations on the treaty are likely to be long and complex. Britain seeks to exclude City of London financial services companies from global tax reform.
Chancellor Rishi Sunak is concerned that Biden’s proposal could prove to be a significant deterrent for banks that run many of their operations from London, compounding the impact of Brexit that resulted in a financial trade shift to Amsterdam.
It is unclear whether all forms of financial services, from banks to mutual funds, insurers and hedge funds, would be excluded from a process that has yet to be negotiated.
Chris Sanger, the world government and risk tax leader at accounting firm EY, said: “Several countries assume that there would be an exception for financial services. The question now is how to handle these exceptions without all the complexities that they bring.
Sunak hailed the tax deal as “historic” when G7 finance ministers agreed on the framework on Saturday, adding that it would force “the largest multinational tech giants to pay their fair share of UK taxes.”
However, gaps in the deal remain, and key details have yet to be worked out among the broader group of G20 countries, including China, India and Brazil, at meetings in Venice next month. The changes will then be negotiated among 139 countries in a process overseen by the Organization for Economic Cooperation and Development, with the goal of reaching a final agreement in October.
Yellen called the weekend deal “historic” and said it would “end the race to the bottom in corporate taxes and ensure fairness for the middle class and working people in the United States around the world.”
George is Digismak’s reported cum editor with 13 years of experience in Journalism