Daily Management Review

US Treasury Secretary Yellen Says Multinationals Tax Deal Not Likely Before 2022


A newly approved mechanism that will give the opportunity for more countries to tax large, highly profitable multinational companies might take as long as spring 2022 to be ready for discussions by lawmakers, said the US Treasury Secretary Janet Yellen on Sunday.
The OECD re-allocation of taxing rights was on a "slightly slower track" compared to the proposal for a global corporate tax of at least 15% as a part of a tax agreement among 132 countries, said Yellen while addressing the news after a G20 finance leaders meeting in Venice, Italy.
The deal was endorsed during the weekend meeting of the finance ministers and central bank governors of G20 countries. However there are questions about whether the US President Joe Biden's administration will be able to convince a deeply divided Congress to pass the deal with the changes.
A two-step process for implementing the OECD tax deal was suggested in the comments of Yellen with the proposal for the global minimum tax likely to be approved faster.
She hoped that she would be able to include certain provisions for implementing the so-called "Pillar 2" minimum tax into a budget "reconciliation" bill this year so that the Congress could approve with a simple majority and possibly without requiring the support of the Republican lawmakers, she said.
Unilateral taxes on digital services would come to an end by the so called "Pillar 1" portion of the agreement and would be replaced by a new mechanism allowing many countries to be able to extract taxes from large profitable companies - including tech giants such as Google and Facebook, form the places where the companies generate their profits selling products and services instead of the companies just hosting their headquarters or intellectual property.
According to analysts, this will require a multilateral tax agreement, negotiations for which will be time consuming. 
When asked whether a two-thirds majority would be needed in the U.S. Senate, Yellen said: "Pillar 1 will be on a slightly slower track. We'll work with Congress". Two-third majority is generally needed for international treaties.
"It may be in ready in the spring of 2022 and we'll try to determine at that point what's necessary for its implementation," Yellen said.
How the withdrawal of unilateral digital services taxes would be affected by the 2022 deadline is yet unclear.
When she was asked about her views on an expected European Commission proposal for a new digital levy to fund pandemic relief, Yellen clearly stated that European Union countries had agreed to withdraw such taxes.
"It's really up to the European Commission and the members of the European Union to decide how to proceed, but those countries have agreed to avoid putting in place in the future and to dismantle taxes that are discriminatory against U.S. firms."
In addition to Hungary, Estonia, Kenya and Nigeria, Ireland is the major low tax haven that is yet to sign up to the international tax deal.
"In some cases there are specific technical issues that can be addressed and where possible we will discuss and try to bring them aboard," she added.