The US Congress is considering tax policies put forth by the Organization for Economic Cooperation and Development (OECD), an international organization, proposing a global tax system targeting multinational companies in the digital economy. The OECD’s tax scheme calls for a “Two Pillar Solution.” Ahead of the June 30th deadline for implementation, the National Taxpayers Union Foundation has issued a new report analyzing the OECD’s proposal and its impact on American taxpayers.
Pillar One would reapportion the taxing power of large multinational companies, mostly U.S.-based tech companies. Pillar Two would impose a global minimum tax on either domestic or foreign earnings that are not taxed at the minimum threshold of 15 percent. While the two solutions do not depend on each other for implementation, they are tied together for political purposes, with different countries wanting the pillars to different degrees.
Debbie Jennings, Policy Manager at the National Taxpayers Union Foundation, examined the terms of both Pillars and their impact on American businesses and taxpayers. The report cautions Congress to avoid rubber-stamping any proposal that could harm the country’s international competitiveness.
“Congress must receive more information to ensure that any tax changes preserve U.S. competitiveness. International tax competition encourages innovation in tax policy, economic growth, and efficient use of global resources,” Jennings wrote “Handing over our country’s tax laws and revenues to international actors eliminates the ability to determine which policies would be best suited for U.S. taxpayers.”
There are many reasons to doubt the timeline put forth by the OECD, as previous deadlines have already been missed or delayed. Due to the agreement's structure, many presume it to be an international treaty. However, the US Constitution states that any treaty must be ratified by two-thirds of the Senate, and questions remain about the terms of the agreement. Thus, the fate of Pillar One is in the hands of the U.S. Senate.
With the technical uncertainty around both pillars, the likelihood that the U.S. will lose revenue from both pillars and the potential that the deal will fail to achieve important U.S. policy goals such as the elimination of discriminatory Digital Services Taxes (DST), Congress has wisely decided not to enact elements of either pillar thus far. Meanwhile, other countries eager to take a share of U.S. tax revenue have continued with DSTs and moved towards enacting a global minimum tax.
To speak with Debbie Jennings about the Two Pillar Solution's next steps, contact Courtney Manley, NTUF Communications Manager, at 703-299-8671 or Courtney.manley@ntu.org.