US Companies Raise Alarms as Global Tax Deal Rewrite Drags On

US multinational companies are telling Congress members and the Trump administration that negotiations at the OECD to rewrite major parts of the global minimum tax framework are going too slow.

As a group of about 140 countries crawl through negotiations, US corporations are worried they’ll have to invest millions to comply with the tax, known as Pillar Two, if a deal exempting them from parts of the framework isn’t reached by year’s end.

The exemption was borne out of a deal struck by the US and its Group of Seven allies in June to work on a system separating US taxes on foreign-earned income from 15% global minimum tax. In exchange for a so-called “side-by-side” system, the Trump administration asked Congress to remove Section 899—the so-called “revenge tax"—from the GOP’s sweeping tax-and-spending bill passed in July.

“What companies have started to increasingly say to us, the Treasury and to the Hill is, ‘Look, if we don’t have clarity that this is going to happen very, very soon, we are going to have to start increasing our level of investment for compliance on the assumption that this isn’t going to get adopted,’” said Pat Brown, partner and co-leader at PwC’s Washington National Tax practice.

A spokesperson for House Ways and Means Committee member Rep. Ron Estes (R-Kansas) said the lawmaker has fielded worried calls from companies about the time crunch, especially around the temporary rule called the undertaxed profits rule that insulates US companies on American soil from the global minimum tax.

“There are companies, international companies that are looking towards the end of the year and realizing that if there’s not a deal in place, the UTPR safe harbor expires,” the spokesperson said.

The US Chamber of Commerce is also fielding concerns from members about timing.

“There is a heightened sense of urgency here among US companies,” said Watson McLeish, the Chamber’s senior vice president of tax policy.“People are going to want to know sooner rather than later what the rules of the road are going to be.”

Read More: Treasury Looks to Revive ‘Revenge Tax’ if OECD Deal Falls Short

Bringing Back Section 899

US companies are also worried that countries, frustrated with US demands and starved for revenue, will wait out President Donald Trump’s term to negotiate with a more friendly administration.

Ray Beeman, principal and leader at EY’s Washington Council, said that some companies are “concerned that there’s kind of a waiting game ensuing, where maybe they wait out the administration and see who comes in next.”

But kicking the can down the road is a gamble for other countries, Beeman added. Even if a Democrat or a more internationalist president succeeds Trump, it’s not guaranteed that any future US government will take the same approach to the global minimum tax as the Biden administration, he said.

All of these concerns ratchet up pressure on both Congress and the Treasury Department to leverage all the tools at their disposal to clinch a deal. That includes Republican lawmakers resurrecting proposed Section 899.

Estes’s spokesperson acknowledged that there could be a point where both the administration and Congress bring back Section 899 absent progress on a deal.

The revenge tax proposal, an amalgamation of bills introduced by Estes and Ways and Means Chair Jason Smith (R-Mo.), sought to increase taxes on foreign companies in the US if their home countries were imposing “unfair” taxes on American businesses.

Treasury officials have given the group of about 140 countries at the OECD until Dec. 31 to come to an agreement—the same time a temporary global minimum tax rule shielding US companies from the levy on American soil is set to expire.

Both Smith and Estes are watching the OECD negotiations closely. Smith said earlier this month that the House would pass another Section 899 bill if European finance ministers don’t hold of their end of the bargain.

Estes, too, has repeatedly stated he’s operating off the principal of “trust, but verify” that countries won’t subject American companies to parts of the global minimum tax.

His office said there must be proof of progress, such as technical guidance to carry out the side-by-side system and more countries coming out in support of a deal, to prevent Congress from passing another version of the revenge tax.

Senate Snags

The revenge tax’s potency as a weapon could eventually be dulled if the other half of the Congress lacks the will to advance the measure to Trump’s desk.

After the Senate stripped the new code section out of the budget reconciliation bill this summer, key members are reluctant to pull that tool off the shelf again.

“I’ve got a lot of questions about that,” Sen. John Cornyn (R-Texas), a senior member of the Senate Finance Committee, said earlier this month. “I’ve heard a lot from people about how that will discourage foreign investment. We don’t necessarily want to do that willy-nilly. Maybe on a targeted basis.”

Sen. James Lankford (R-Okla.), another tax writer, hesitated about reviving the revenge tax.

“This is getting messy,” Lankford said earlier this month. “I don’t know that that’s the particular solution on it, but we do have to make sure that Pillar Two is not being imposed on our companies.”