US treasury secretary Janet Yellen assured Minister for Finance Paschal Donohoe in June that the Biden administration would be able to get the key measures of the OECD global corporate tax deal through Congress, the New York Times has reported. However new doubts have emerged after Joe Manchin, a US Democratic senator from West Virginia, said last week that he would block the passage of Mr Biden’s key climate and tax legislation, including elements of the OECD deal, through the Senate.
Mr Donohoe met Ms Yellen in early June in Washington in his capacity as president of the Eurogroup, the committee of finance ministers from euro zone countries. The Department of Finance confirmed that the corporate tax deal was one item on the agenda.
It is an issue that Mr Donohoe and Ms Yellen have discussed on several occasions, before and after the Republic opted into the deal. And Mr Donohoe has referred in interviews to Ms Yellen’s confidence that the deal would pass Congress.
The 50:50 split between Democrats and Republicans in the Senate means Senator Manchin has been one of a small number of Democrats able to hold up progress on Mr Biden’s major tax and climate package. This includes legislation to implement a minimum 15 per cent tax rate on the overseas earnings of US firms, in line with the new global minimum rate which is a central part of the OECD deal.
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Time is now running out before the congressional mid-term elections in November to get the deal through. Senator Manchin expressed deep misgivings about the international tax pact, for which he had previously indicated support, saying it would put American companies at a disadvantage.
“I said we’re not going to go down that path overseas right now because the rest of the countries won’t follow, and we’ll put all of our international companies in jeopardy, which harms the American economy,” Senator Manchin told a West Virginia radio station on Friday. “So we took that off the table.”
His reversal is a blow to Ms Yellen, who spent months getting more than 130 countries on board. It is also a defeat for Mr Biden and Democratic leaders in the Senate, who pushed hard to raise tax rates on many multinational corporations in hopes of leading the world in an effort to stop companies from shifting jobs and income to minimise their tax bills.
The OECD tax deal has two main elements — the minimum 15 per cent corporate tax rate for big companies and new measures to change where technology companies pay some of their tax.
Uncertainty about what will happen in the US has led to a delay in implementing the deal worldwide, including in the EU where Hungary is holding out against agreement on the 15 per cent rate.
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Talks on how to implement the other part of the deal, which would change where companies are taxed, are not due to conclude now until the middle of next year. It is also unclear how the Biden administration would get this element of the deal through Congress.
Despite Senator Manchin’s comments, the US treasury department said it was not giving up on the agreement.
“The United States remains committed to finalising a global minimum tax,” said treasury spokesman Michael Kikukawa. “It’s too important for our economic strength and competitiveness to not finalise this agreement and we’ll continue to look at every avenue possible to get it done.”
Jared Bernstein, a member of Mr Biden’s council of economic advisers, told reporters at the White House on Monday that the president “remains fully committed” to participating in a global tax agreement. “Any rumours of its demise are hugely premature,” said Mr Bernstein.
The entire project has been on shaky ground in recent months amid ongoing opposition in the EU, delays over technical fine print and concerns about whether the US would actually join. Nevertheless, it remains possible that the EU and other countries will still move ahead with the agreement, leaving the US as an awkward outlier from a deal that it revived last year.
If the EU moves ahead before the US, then American companies could face having to make top-up payments in EU countries to make up the difference between the 15 per cent minimum and the current US 10.5 per cent rate charged on overseas earnings. In turn, this would put pressure on US legislators to act.
