July 20, 2023
Ways & Means subpanel asks Treasury about Pillar Two design
The Republican majority of the House Ways & Means Tax Subcommittee July 19 challenged Michael Plowgian, Deputy Assistant Treasury Secretary for International Tax Affairs, to defend the OECD-led BEPS 2.0 global minimum tax project, US support for the project and how the government has negotiated various aspects of the global minimum tax rules. Members also criticized the Biden Administration for not regularly consulting with Congress and, specifically, the Committee as the negotiations have moved forward. They specifically questioned the constitutionality and global legal framework for allowing other nations a potential share of US taxes through the Undertaxed Profits Rule (UTPR) and why the US R&D credit isn’t treated under the global system in the same way as refundable R&D credits provided by other countries.
Republicans took particular aim at the Joint Committee on Taxation analysis suggesting the United States stands to lose over $120 billion in tax revenues if the rest of the world adopts Pillar Two in 2025 as clear evidence that the Treasury has failed in negotiating a good deal for the United States. While Plowgian did not dispute the estimate, he did note several times that the JCT analysis provided a range of estimates based on several different scenarios, and that the US may actually see an increase of revenue through implementation of Pillar Two.
In an opening statement, Chairman Mike Kelly (R-PA) asserted that the United States would continue to be a revenue target for digital services taxes (DSTs) and, “This Administration has called for additional business taxes to fund their domestic spending agenda. So then why would Treasury negotiate an OECD deal that surrenders over $120 billion in US tax revenues to foreign countries? It makes no sense.”
Ranking Member Mike Thompson (D-CA) defended the project, saying in an opening statement, “American workers and taxpayers have paid the price for a system that rewards large multinational corporations that do business in one country and park their profits in the country with the lowest tax rate they can find. Republicans’ desperate attempts to preserve this system is more of the same: sparing the largest, most profitable companies from paying their fair share while honest taxpayers are left with the bill. The global minimum tax is designed to level the playing field and put an end to underhanded profit shifting.” For Subcommittee Democrats, a key argument was that the US Treasury should not walk away from the negotiating table on Pillar Two because that would leave no one to support the US and US companies.
Panel 1 featured Plowgian alone, who said in testimony that Pillar One and Pillar Two can only be implemented in the US with the support of Congress, and Treasury stands ready to work with lawmakers: “We hope to have a complete Pillar 1 package soon and intend to continue to seek input. Similarly, with respect to Pillar 2, we stand ready to work with Congress to enact the reforms proposed in the President’s Budget to implement Pillar 2, which would increase U.S. revenue and strengthen our tax system. We will also continue to work with Congress to prioritize issues for interpretive guidance.”
Additional details are available in the attached Tax Alert.
Ways & Means subpanel on Pillar Two design