US Lawmakers Criticize OECD's Plans for Global Minimum Corporate Tax Rate and Taxing Rights

US lawmakers have voiced criticism against the OECD's proposals for a minimum corporate tax rate and new taxing rights as part of the two-pillar solution. The House Ways & Means Committee held a hearing on Friday, July 21, where the US Treasury's negotiations came under scrutiny.

In particular, the committee raised concerns about the undertaxed payments rule (UTPR), a critical component of the global anti-base erosion rules aimed at establishing a global minimum corporate tax system. Ways & Means Committee Chairman, Jason Smith, questioned Michael Plowgian, the deputy assistant secretary for international tax affairs at the Treasury, asking whether Congress was consulted before the Treasury agreed to the UTPR surtax, which would allow foreign governments to tax the US operations of US companies.

While Plowgian stated that the Treasury did receive input from Congress during the negotiations, Smith disagreed, asserting that Republican members were not consulted before the decision.

Representative Mike Kelly, who chairs the Ways & Means Sub-committee on Tax, criticized the agreement for its potential cost to the US, claiming it could lead to $120 billion in US tax revenues being surrendered to foreign countries. He also expressed concerns that the OECD's tax work is heavily influenced by Europe, with one-third of the seats on the Steering Committee being controlled by Europe, and the broader Inclusive Framework including over 30 former European colonies.

Kelly argued that the US is at a disadvantage in negotiations, stating that it doesn't make sense for the Treasury to engage in closed-door negotiations with 140 nations on a "one-country, one-vote" basis.

Plowgian emphasized that the second pillar of the OECD's proposal aims to level the playing field for US companies. However, this explanation did not sway Republicans on the committee, with Representative Drew Ferguson asserting that their goal is for the US to be number one in the world, not simply to level the playing field with other countries.

The concerns raised by US lawmakers have sparked worries among tax experts that US politics may hinder the OECD's efforts to secure a multilateral agreement on tax reform. If the two-pillar solution fails, US companies could face the threat of unilateral taxes imposed in Europe and elsewhere.

As the OECD continues to work on pillar one of the solution, focusing on new taxing rights and profit allocation rules, the organization aims to reach a consensus and finalize an agreement by the end of the year. The outcome of these negotiations will have significant implications for international tax rules and corporate tax obligations for companies operating globally.

By fLEXI tEAM