Opposition to 15% Minimum Tax in Pillar Two Voiced By U.S. Republicans

In September 2023, Republican members of the House Ways and Means Committee met with officials from the Organization for Economic Co-operation and Development (OECD), the international association coordinating one of the largest global tax deals among nations to address international taxation. 

Committee Chairman Jason Smith and other committee members made it clear to the OECD officials they never approved of the Biden administration’s intention to go along with Pillar Two of the global tax deal. Under Pillar Two, participating countries around the world would implement a 15% minimum tax on large multinational corporations with global or total revenues over €750 million, or $800 million, as of September 2023. 

Four Key Objections 

In the meeting, Smith outlined four key objections: 

1. Global Intangible Low-Taxed Income: The United States already has a strong global minimum tax. In fact, global intangible low-taxed income (GILTI) has been in place for nearly six years, raising billions of dollars every year. The United States will not suddenly repeal the proven system in favor of an untested regime with substantial complexity and uncertainty. 
2. Abuse of Global Tax System: Republicans feel the OECD should develop specific actions to address the risk of China and others abusing the system, including identifying manipulation of companies’ financial accounts and preventing state subsidies or refundable credits from being used as an avoidance tool. 
3. Undertaxed Profits Rule Surtax: If other countries move forward with the surtax related to undertaxed profits, the United States will continue to aggressively pursue tax and trade countermeasures. 
4. Digital Service Tax: The discriminatory digital service taxes that countries have targeted at U.S. companies are strongly opposed, similar to the structure of Pillar One that disproportionately impacts the United States. 

Pillar One applies to multinational enterprises with revenues exceeding €20 billion, or about $21.3 trillion as of September 2023, and with more than 10% profitability. It allocates 25% of excessive profit to market jurisdictions where the multinational enterprises have quantitative nexus. 

Congressional Actions

Earlier in September 2023, Smith said the Biden administration’s negotiations with the OECD regarding the global tax deal would surrender America’s sovereignty over its tax laws, give foreign competitors an economic advantage, and cause the United States to forfeit over $120 billion of tax revenue over the next decade. 

“The Biden administration has no constitutional authority to write U.S. tax laws, and their negotiations at the OECD would permit foreign countries to impose unfair taxes on American workers and make the United States less competitive in the global economy. Most egregiously, the 'UTPR surtax' in OECD Pillar Two allows foreign countries to tax U.S. businesses on profits earned in the United States, including clawing back key tax incentives like those for conducting research and innovation activities in the United States,” said Smith. 

Previously, Smith had introduced the Defending American Jobs and Investment Act. The bill creates a reciprocal tax applicable to any foreign country that imposes unfair taxes on U.S. businesses and workers under the OECD’s global tax deal. Additionally, Rep. Ron Estes also introduced the proposed Unfair Tax Prevention Act, which he contends would discourage foreign countries from attacking U.S. jobs and tax revenues through the OECD’s Pillar Two UTPR surtax. As of this writing, passage of either of these bills into law is uncertain. 

Controversial and Uncertain 

If finalized and widely followed, the global tax deal would be a major change to international taxation. However, whether and how the United States will be involved remains controversial and uncertain. Stay tuned, as Moore Doeren Mayhew will continue to provide updates for you. In the meantime, should you want to understand the potential impacts of your unique tax situation, contact our tax advisors today.