GOP Fights Biden Deal That Lets Other Countries Tax U.S.-Based Profits

The Biden administration signed on to a worldwide tax agreement, giving Congress the option of either applauding the deal or watching American businesses suffer foreign tax penalties.

Congress said this week that it would not do either.

On Thursday, the GOP-controlled House told the Biden administration in no uncertain terms that it would not approve the deal that Treasury Secretary Janet Yellen negotiated with more than 130 other countries to align America’s corporate tax laws with the OECD’s global tax rules. Yellen described the agreement as “global tax rules”. “a once-in-a-generation accomplishment for economic diplomacy.”

“The OECD agreement is a bad deal for American workers and families, and it has no path forward in Congress,” Jason Smith, R-Mo. House Ways and Means Chairman). “The Biden Administration cannot override Congress’s sole tax-writing authority under the Constitution or turn that power over to foreign bureaucrats.”

“I think the Biden administration thought they had more political leverage than they did with these rules,” The Epoch Times spoke with Daniel Bunn about his presidency of The Tax Foundation, a non profit analytical group. “I think that was a key mistake that they thought they could get it through Congress with the majority they had, and that was an error on their part.”

Bunn is positive that Congress will approve at least some of the deals. “I think Congress doing nothing is probably a bad option,” He said that the deal is designed to protect U.S. businesses from foreign tax penalties.

The new Global tax agreement This complex package aims to eliminate tax havens and impose minimum taxes on all countries. The plan can be divided into two parts “pillars.”

Pillar One allows countries to tax a company’s profits if its products are sold in that country, regardless of where the company itself is based, and would affect an estimated $125 billion in profits. Pillar Two establishes an international minimum tax of 15%, which could raise $150 billion globally.

The plan aims to raise corporate taxes and redistribute global tax income, which will allow more tax revenue for less developed countries. Yellen argues it could be revenue neutral for Americans if the United States collects enough foreign taxes under the plan.

The original implementation date was set for mid-2023. These measures would be applicable initially to only companies with a turnover of at least 20 million euros. However, this threshold will likely fall in the future. As national governments try to negotiate the details and revise existing tax treaties, it appears that implementation will be delayed to 2024. However, some argue that there is more at risk than just corporate tax rates.

More on National Sovereignty and Tax

“The OECD tax pillars, especially Pillar Two, are nominally about tax, but they’re much more about sovereignty; that is, who gets to make a country’s tax laws,” Aharon Friedman is a former staffer of the House Ways and Means Committee and Treasury Department. He spoke to The Epoch Times. “The [Biden] administration requested that Congress enact numerous tax increases, and even the Democrats refused to enact most of them, so the Treasury Department went to the OECD and the EU and asked them to enact tax increases on American companies on the income they earned in the United States” To force Congress to do the same.

According to Joe Hughes, Federal Policy Analyst at the Institute on Taxation and Economic Policy (ITEP), the purpose of the OECD tax deal is to stop big corporations from arbitraging different countries’ tax laws to avoid paying taxes.

“A company like Nike might set up subsidiaries in a tax haven where they register the trademarks to their brands,” Hughes said so to The Epoch Times. “They tell the IRS they earned their profits where the trademark was registered rather than where they’re making and selling the shoes.”

This is how to close it “loophole,” The OECD agreement would require companies to pay taxes in the countries where they sell their products. And if a country refuses to implement the OECD tax rules, particularly regarding the 15 percent minimum tax, other countries can then tax that country’s corporate profits at a higher rate to make up the difference.

“If a country doesn’t implement the agreement, its companies could still end up paying the global minimum tax, just to a foreign government instead,” Hughes. “So if Congress takes no action on it and the EU and UK carry through with implementation, the U.S. will lose tax revenue to those countries.”

Congress says it will fight back

Friedman stated that he believes the House won’t approve the OECD plan. If other countries try to target U.S. businesses for retaliation it will violate existing tax treaties. The United States will then respond in kind.

“They’re not going to be intimidated or bullied by the Treasury Department or by other countries,” He said. “Congress is not going to enact Pillar Two because it doesn’t believe in ceding its sovereignty or its authority under the Constitution, and it will take whatever counter measures are necessary to make sure other countries don’t attempt to attack or tax American companies in violation of our tax treaties.”

A joint letter (pdfThis view seems to be supported by the Yellen-representatives and senators of the GOP on Dec. 14, which appears to confirm it.

“For the past two years, the Biden Administration has routinely made commitments in the OECD negotiations it has no authority to fulfill,” The letter states. “Despite Treasury’s actions to date, it cannot dictate U.S. tax law or compel Congress to act.”

“While some may believe that implementation by foreign countries of the model rules … will lead the United States to follow suit, Congress’s hand will not be forced,” The lawmakers wrote. “Nor will Congress sit idly by as U.S. companies and profits are taxed in a manner inconsistent with U.S. law and our bilateral tax treaties.”

Some view the OECD agreement as a Trojan Horse. There are concerns that the United States may give away its corporate taxing authority on this agreement to foreign organizations.

“The OECD itself has stated, even boasted, that this is just the first step,” Friedman stated. “Their next step is to open a similar project with regard to carbon taxes, and they also want to examine the taxation of individuals. So one could imagine, just like we are imposing a minimum tax on corporations, they could also impose a minimum tax on individuals around the world.”

GOP intensifies investigation into Biden Admin Foreign Agreements

Congress, now with a Republican majority, is seeking to check the Biden administration’s global agreements that may put the United States at a disadvantage. Earlier this week, the House Oversight Committee issued a strongly worded letter to Biden’s climate czar John Kerry, demanding to know what he is up to in his high-level climate negotiations with the Chinese Communist Party (CCP).

James Comer (R.Ky.) was the Chair of the Committee and issued the following letter: “you continue to engage in activities that could undermine our economic health, skirt congressional authority, and threaten foreign policy under the guise of climate advocacy.” It is interesting to note that Kerry stated to the Associated Press that he was working for the CCP. “form a group to reduce greenhouse gas emissions,” Comer wrote: “As a member of the President’s cabinet, you should be representing the United States’ interests. Your statements, however, consistently show disregard for American national security and taxpayer dollars.”

Kerry spoke at the World Economic Forum Summit in Davos last week, stating that the only way to stabilize climate change was through economic reform. “money, money, money, money, money.”

“We have to unleash the trillions of dollars for bankable deals,” Kerry said. “It’s so almost extra terrestrial to think about saving the planet, and if you said that to most people, they’d think you’re just a crazy tree hugging lefty, liberal, you know, do-gooder or whatever.”