U.S. won't comply with global minimum tax in spending bill

U.S. won't comply with global minimum tax in spending bill

A fountain is in front of the U.S. Capitol in Washington.

WASHINGTON Reuters - A corporate minimum tax in a congressional spending bill set for passage on Friday will not bring the United States into compliance with a 137 country deal for a minimum tax.

Both taxes are the same rate - 15% - but they are separate items that apply differently to companies.

The House of Representatives was to vote on Friday on the $430 billion legislation that was already passed by the Senate, and send it to President Joe Biden's desk for signing into law, a political triumph for his Democratic Party ahead of the Nov. 8 midterm election.

Maverick Democratic Senator Joe Manchin, who struck the legislative deal with Senate Majority Leader Chuck Schumer, his fellow Democrat, has not backed the global tax plan.

The Climate and Healthcare Investment Bill will leave the U.S. Treasury without a path to implement the 15% global minimum tax deal approved by the Organisation for Economic Cooperation and Development countries in October 2021.

To comply, the Treasury would need to raise the current overseas minimum corporate tax from 10.5% to 15% - a move opposed by Republicans and Manchin in the past.

Biden supported the corporate minimum tax bill, which would fulfill a campaign promise to make U.S. corporations pay more than the dwindling percentage of the federal budget they have contributed since the 1940 s.

It will finance the Democrats' slimmed-down $430 billion climate change and prescription drugs bill. But lawmakers, congressional aides, and tax experts say it won't bring the country into compliance with the global minimum tax.

Additional compliance steps were needed, according to the U.S. Treasury.

The proposal for 15% domestic tax on companies' book income of at least $1 billion annually is different from the global minimum tax plan, said KPMG's Washington National Tax practice chief Manal Corwin.

Corwin said that its adoption does not bring the U.S. rules into alignment with the minimum tax architecture embodied in Pillar Two of the OECD proposal.

There are allowances for certain business tax credits, such as research and development and other investments, unlike in the global minimum tax plan.

Under the global minimum tax, U.S. companies with big tax credits could comply with the proposed domestic minimum, but would still be subject to a top-up tax on overseas profits, Corwin said.

Some people oppose the global minimum tax, including Manchin, claim that this would diminish the benefits of such credits.

U.S. Treasury Secretary Janet Yellen, who was a driving force behind the 15% global minimum tax deal last year, and has held out countries to support it, is not giving up on U.S. implementation.

A U.S. Treasury official said that the domestic corporate minimum tax on the Inflation Reduction Act is an important provision to ensure large corporations pay their fair share in taxes. The Biden Administration has a top priority for the global minimum tax and there are still steps needed to bring the United States into compliance. She will look for every opportunity to enact the global corporate minimum tax, which she helped negotiate. If other countries move ahead with the minimum tax plan, they would be able to collect top-up taxes from U.S. companies that would otherwise flow to the Treasury, Yellen has argued, putting pressure on the U.S. lawmakers to implement the tax and keep those revenues in the United States instead.