PARIS – In a meeting with the Organization for Economic Co-operation and Development (OECD), the international association coordinating the global tax deal, members of the House Ways and Means Committee, led by Chairman Jason Smith (MO-08), made clear that countries that try to use the OECD global tax deal to steal away American jobs and tax revenues can expect economic consequences in the future. Chairman Smith was joined in the meetings by the following Committee members:
Rep. Ron Estes (KS-04)
Rep. Kevin Hern (OK-01)
Rep. Carol Miller (WV-01)
Rep. Greg Murphy (NC-03)
Rep. Michelle Steel (CA-45)
Rep. Randy Feenstra (IA-04)
Rep. Nicole Malliotakis (NY-11)
The deal negotiated by the Biden Administration, without consulting Congress, surrenders America’s sovereignty over our tax laws, gives foreign competitors like China an economic advantage, and would cause the United States to forfeit over $120 billion of tax revenue over the next decade. The Biden Administration has no constitutional authority to write U.S. tax laws, and their negotiations at the OECD would permit foreign countries to impose unfair taxes on American workers and make the United States less competitive in the global economy.
Most egregiously, the “UTPR surtax” in OECD Pillar 2 allows foreign countries to tax U.S. businesses on profits earned in the United States, including clawing back key tax incentives like those for conducting research and innovation activities in the U.S. In May, every Ways and Means Republican joined Chairman Smith in introducing the Defending American Jobs and Investment Act, which would impose a reciprocal tax measure on multinational companies and wealthy investors from countries that try to use the UTPR to tax U.S. workers and productivity for their own gain.
The following are the remarks as prepared by U.S. House Ways and Means Committee Chairman Jason Smith (R-MO) opening the meeting with OECD Director Mathias Cormann:
Secretary General Cormann, thank you for hosting us today.
The OECD’s mission—“Better Policies for Better Lives”—is more important than ever. Countries must find ways to encourage economic development and jobs. Every challenge that we face becomes worse in a world of less opportunity and less growth. And that’s why each Member here has been following the OECD global tax project so closely: ultimately, it will affect the lives of our constituents.
The OECD “two-pillar solution” is probably the largest and most complicated tax project ever undertaken. Your team has done an admirable job of facilitating discussions among countries and seeking common ground. While we have concerns with many aspects of the project, we appreciate the willingness to engage in a dialogue.
As you know, Members of the Ways and Means Committee have primary responsibility for our tax laws. In the United States, the taxing power rests in the House, as close to the people as possible. No tax proposal can become law in the United States unless it originates in the Ways and Means Committee. And we will not surrender our tax-writing authority to anyone.
You know of our concerns with the Biden Administration’s negotiations at the OECD. I don’t think that Republicans’ goals differ from most other countries participating in the Inclusive Framework. We oppose corporate tax abuses and support fewer disputes among countries and an improved global tax system. We also want to defend our tax base and jobs from direct attack.
Unfortunately, we’re concerned that the current framework flips the hinges: rather than closing the door on tax avoidance, the deal opens new opportunities for China and others to maneuver and exploit the rules. We worry that the global tax system is headed for more, not fewer, disputes among countries. And we are shocked at the extent to which the Biden Administration has been willing to surrender the U.S. tax base.
I would like to share four key points with you today:
1. As you know, the U.S. already has a strong global minimum tax. GILTI has been in place for nearly six years, and it raises billions of dollars every year. We do not object to Europe or others implementing their own GILTI-type taxes. However, we will not suddenly repeal our proven system in favor of an untested regime with substantial complexity and uncertainty.
2. We encourage the OECD to develop specific actions to address the risk of China and others abusing the system, including identifying manipulation of companies’ financial accounts and preventing state subsidies or refundable credits from being used as an avoidance tool.
3. If countries move forward with the UTPR surtax, we will continue to aggressively pursue tax and trade countermeasures. We won’t allow rogue foreign tax collectors to attack the U.S. operations of U.S. companies or harass U.S. companies and workers operating in third-party countries.
4. We continue to strongly object to the discriminatory digital services taxes that countries have targeted at U.S. companies. With respect to Pillar 1, we similarly oppose a structure that disproportionately impacts the United States.
The next steps in the OECD global tax project will have a significant effect on the future of our economy and our workers. We look forward to the conversation today, and we hope to work with you on a path forward.
Again, thank you for making time to meet with us.
Previously, Chairman Smith introduced H.R. 3665, the Defending American Jobs and Investment Act, to prevent President Biden’s global tax surrender from killing American jobs, surrendering sovereignty over our tax code, and handing a competitive advantage to the Chinese Communist Party. The bill creates a reciprocal tax applicable to any foreign country that imposes unfair taxes on U.S. businesses and workers under the OECD’s global tax deal.
READ: Ways and Means Republicans Introduce Bill to Combat Biden’s Global Tax Surrender
Rep. Estes also introduced the Unfair Tax Prevention Act to discourage foreign countries from attacking U.S. jobs and tax revenues through the OECD’s Pillar 2 so-called Under Taxed Profit Rule surtax.
READ: Rep. Estes Introduces Legislation to Protect Americans from Unfair Taxes in Global Tax Pact
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1 comment on “Chairman Smith Warns That Congress Will Reject New Job-Killing Global Tax Surrender”
In the same way that automatic information exchange regimes have evolved, it appears that the international tax regime will evolve. (One set of rules for the United States and one set of rules for the rest of the world.)
International Information Exchange: The U.S. has FATCA which is a series of bilateral “arrangements” (not agreements) with different countries. Pursuant to these arrangements the other country gives everything and the U.S. gives nothing. The U.S. has not and will not join the CRS because it is a multilateral agreement (all countries give and receive from each other). For the U.S. to join the CRS, obligations would be imposed on the U.S.
International Tax Regime: Leaving aside the issue of the Treasury claiming authority it doesn’t have (which is obviously true), Pillars 1 and 2 are multilateral agreements. Countries that sign on will essentially give and receive. Again, a multilateral agreement would impose obligations on the United States. That is the real basis for the objection to U.S. participation in Pillars 1 and 2.
The U.S. decision to stay outside the new international tax regime (which interestingly was proposed by the U.S.) will lead to a world dominated by two systems of international taxation:
1. The U.S. will attempt to cling to the existing world of bilateral treaties and will not sign on to the Pillar 1 and Pillar 2. It may find support from developing countries that believed that (rightly or wrongly) minimum corporate taxes will restrict their economic development.
2. The new Pillar 1 and Pillar 2 regime which is going to happen and will include the rest of the major economies. To repeat: Pillar 1 and Pillar 2 are going to happen.
It is far too early to predict the outcome of the U.S. standing outside the rest of the world.
With respect to some of Chairman Smith’s specific comments:
First UTPR:
“Most egregiously, the “UTPR surtax” in OECD Pillar 2 allows foreign countries to tax U.S. businesses on profits earned in the United States, ….”
It’s worth noting that the United States does EXACTLY the same thing through it’s unique system of citizenship taxation. To be clear (to adopt the style of his comments):
“Most egregiously, U.S. citizenship taxation through it’s Internal Revenue Code, allows the United States to tax foreign businesses (and individuals) on profits earned in those foreign countries …”
Second digital services taxes:
“We continue to strongly object to the discriminatory digital services taxes that countries have targeted at U.S. companies. With respect to Pillar 1, we similarly oppose a structure that disproportionately impacts the United States.”
It is possible that proposed digital services taxes disproportionately affect U.S. companies. That said, in their express terms they would apply to all companies.
But, the real question is this:
We have moved from the industrial economy from the 20th century to the digital economy of the 21st century. In the digital economy, one does not need a physical presence in a country to access the customer base in that country and generate significant profits. Why should those companies be exempt from taxation on the profits earned in those countries? Why should “Big Tech Company A” be permitted to profit from the consumer base in a country and deny the government of that country the opportunity to share in the profits generated from their own consumer base? Admittedly, this is what the tax treaties from the last century allow. The question is whether the rules of international tax should be based on the industrial economies of the last century or the digital economies of this century.
Additionally, while the U.S. objects to other countries imposing DSTs (which are based on revenues sourced in the other country) the U.S. through its citizenship tax regime imposes income taxation on profits sourced in those other countries. It’s hypocrisy in the extreme.
What is 100% clear is that Chairman Smith’s comments suggest a United States that is:
1. On the one hand prepared to weaponize taxation (his threats of retaliation) to further U.S. interests; and”
2. Will become a “tax isolationist” attempting to impose its rules on others (think especially citizenship taxation) while defending itself against tax rules agreed to by the international community.
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