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March 7, 2024

Ways & Means Subpanel holds OECD Pillar One hearing

The March 7 House Ways & Means Tax Subcommittee hearing on "OECD Pillar 1: Ensuring the Biden Administration Puts Americans First" largely focused on this week's Joint Committee on Taxation (JCT) staff report showing that Pillar One would have resulted in a loss in US Federal receipts of $1.4 billion, based on one set of assumptions, had it been in effect in 2021. Some members said the report could provide an argument for the US to walk away from the project, but there was consensus that digital services taxes (DSTs) would proliferate if the OECD project falls apart.

In an opening statement, Chairman Mike Kelly (R-PA) said while the OECD project was originally intended to eliminate DSTs, the burden of Pillar One will fall disproportionately on US companies. He said a two-thirds majority would be required in the Senate for US implementation of Pillar One, through a multilateral tax treaty, and said the project is designed to fall apart without US participation. Chairman Kelly noted the JCT report and said he was concerned about the Administration sacrificing the financial success of US businesses and the economy. He later suggested Secretary Yellen would be before the Committee at the beginning of April, presumably to testify on the President's budget, which is scheduled to be released March 11, and thus she may be available to answer more questions about Pillar One.

Ranking Member Mike Thompson (D-CA) said the revenue loss projected in the JCT report might be the end of the discussion for some, under the premise of not giving up revenue to other countries, but we need to understand the benefits of the agreement, including on stability, and not just the cost. "For instance, Amount B, if other countries will accede to the Biden Administration's important 'red line' to make Amount B mandatory, could present a real benefit for U.S. businesses, by significantly reducing transfer pricing disputes," he said. Those who look at the JCT report and say the US should "pack our bags and go home" should be asked, "What is the alternative?" Also, there is the question of whether the patchwork of DSTs that will doubtlessly spring into place would be preferable to Pillar One.


  • Megan Funkhouser, Information Technology Industry Council, largely focused her testimony on the rollback of DSTs, and called on Treasury to "develop an explicit roadmap for expanding Amount B's coverage, particularly for services and intangible goods and services."
  • Rick Minor, United States Council for International Business, said Amount B is an important component given its potential to deliver tax administration efficiencies, but said it should be redesigned, including to increase the scope to include a broad spectrum of industries and business models.
  • Gary Sprague, Baker McKenzie, said the US is still working toward a mandatory Amount B and urged Treasury to encourage the OECD to publish a roadmap and timeline for expected further work on the Amount B project, including goals for scope expansion to cover digital goods, services, and retail sales, and mandatory application by tax administrations.
  • Daniel Bunn, Tax Foundation, said, "A major justification for the negotiations leading to Pillar One, Amount A was the possibility of eliminating DSTs. However, even with Amount A, countries may keep their DSTs anyway."

Rep. Lloyd Doggett (D-TX) asked whether the US withdrawing from the project would be harmful, in light of some members calling for any funding related to US participation in the OECD to be cut. Funkhouser said, yes, it would be harmful because the US being part of the conversation is necessary to drive the best outcomes for US businesses, the economy, competitiveness, and people. The project could provide certainty for companies, she said.

Rep. Kevin Hern (R-OK) said the $1.4 billion loss estimated by JCT staff ultimately confirms that, "this is a bad deal for Americans." He said there is good reason and motivation to find a solution to convince countries to remove DSTs and deter their implementation.

Rep. John Larson (D-CT) asserted that we cannot allow innovation to be subject to unilateral taxation from other countries, which would occur with DSTs. He asked for confirmation that Amount A would be delivered through a multilateral convention (MLC) that would first be signed by Treasury then, similar to bilateral tax treaties, ratified by the Senate. Bunn said the Senate would have to ratify the treaty with a two-thirds majority and legislative changes would be necessary as well for the US to claim the new taxing right. Sprague said effectively connected income (ECI) rules would need to be changed.

Rep. Drew Ferguson (R-GA) noted the JCT's range of revenue estimates in the report and asserted it is irresponsible for Congress to move in this direction without more complete data. Bunn said one word that pops up regularly in the report is "uncertainty." He said there isn't a point at which there will be much greater certainty and noted that JCT estimates are single-year, not 10-year numbers. Bunn said the complexity of Pillar One makes revenue estimating not as simple as, say, an estimate of changing the corporate tax rate.

Rep. Linda Sanchez (D-CA) asked about the consequences if Pillar One fails, which Funkhouser said would include further proliferation of unilateral taxes. Asked whether other nations would stop at DSTs or pursue other ways to target US companies, Funkhouser said there could be an increase in novel approaches given the first generation of DSTs focused on advertising and subsequent efforts were broader. Other witnesses said DSTs aren't just going to go away.

Rep. Ron Estes (R-KS) said the Biden administration changed the direction of the OECD project and noted his own ardent opposition to Pillar Two, especially the UTPR. He said the Pillar One marketing and distribution safe harbor (MDSH) fails to account for taxes paid in market jurisdictions under franchise or split ownership structures, in a failure reminiscent of Treasury's inability to grandfather GILTI and protect US R&D incentives. Minor said his group's comments suggest improvements to the MDSH calculation.

Rep. Brad Schneider (D-IL) noted that the US is pushing for mandatory Amount B, which witnesses supported, along with the notion that the US should stay at the table to try to reach agreement on Pillar One. Minor said a mandatory Amount B is essential and it should be seen as part of the overall deal.

Chairman Kelly's opening statement is available here.

Ranking member Thompson's opening statement is available here.

Testimony from the hearing is available here.

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