Sen. Mike Crapo (Idaho), the top Republican on the Senate Finance Committee, is stressing that it’s important for the U.S. to ensure that any international tax agreement doesn’t harm American businesses.
“The stakes for the United States and our national economy are high,” Crapo wrote in a letter this week to Treasury Secretary Janet Yellen. “The United States should not be willing to accept an agreement that continues to target American companies and lets our biggest competitors off the hook.”
The Organization for Economic Cooperation and Development (OECD) and the Group of 20, two groups of industrial countries, have been working for several years to reach an agreement on international tax issues. Negotiators are hoping to reach a political agreement in July.
Crapo wrote that “there continues to be strong bipartisan, bicameral agreement the United States must not agree to an OECD approach that discriminates against American companies – a point Treasury clearly acknowledges.”
The OECD negotiations are focusing on two topics: the first centers on the issue of where companies’ profits are taxed, and the second centers on a global minimum corporate tax rate.
Crapo said that the U.S. should not back an agreement on the first topic unless it directs countries to repeal their digital services taxes (DSTs) that disproportionately target American companies. He expressed concerns about recent comments from European Union officials that indicate that the EU is moving forward with plans for a digital tax.
“It would be unacceptable for the United States to endorse any agreement that would allow DSTs or similar unilateral measures to continue to be imposed on U.S. companies,” Crapo wrote.
Crapo and several other Republican senators asked Treasury Department nominees questions about the OECD negotiations during the nominees’ confirmation hearing on Tuesday.
When Crapo asked about DSTs, Lily Batchelder, President Biden’s nominee to be Treasury assistant secretary for tax policy, said that she generally has “a bias against taxes that target a specific industry and certainty against those that are focused just on U.S. companies.”
Senate Finance Committee Chairman Ron Wyden (D-Ore.) said during the hearing that opposition to DSTs is bipartisan, calling the taxes “the equivalent of a digital dagger aimed directly at our high-skill, high wage companies.”
Crapo also expressed concerns in his letter that some of the U.S.’s competitors could not sign on to an agreement on a global minimum tax rate or receive carveouts. He said that there shouldn’t be any carveouts in an agreement for competitors, including China.
“An agreement that provides exceptions for our biggest competitors would be fundamentally inconsistent with the principle that all countries should be playing by the same rules,” he wrote. “It would also hamstring the U.S. economy while simultaneously benefitting the economies of our primary competitors.”
The Biden administration has proposed to the OECD that the global minimum tax rate be at least 15 percent. The administration has also proposed increasing the U.S.’s minimum tax on corporations’ foreign earnings to 21 percent in order to raise revenue to help pay for the president’s infrastructure plan.
Crapo argued that the U.S. shouldn’t raise its minimum tax until other countries in the OECD implement their own minimum taxes.
“I would encourage you if you’re confirmed to use your voice at Treasury to advocate that the United States not pursue raising our taxes before there is even an OECD agreement, and that we protect against discriminatory digital taxes,” Crapo told Batchelder during Tuesday’s hearing.
Batchelder later in the hearing said that she is supportive of Biden’s proposal to raise the U.S. minimum tax. She noted that while other countries don’t currently have minimum taxes like that of the U.S., they do have provisions in place aimed at preventing their companies from shifting profits to low-tax jurisdictions.