HILL TAX BRIEFING: OECD Releases Profit Reallocation Draft Paper

Countries in which multinational corporations have more “tangible assets” such as employees and physical assets could maintain more revenue under the global tax deal, according to a draft document the OECD released Monday.

The Organization for Econonic Cooperation and Development said implementation of Pillar One of the global deal, which addresses reallocation, will not take effect until 2024 at the earliest.

Under the global tax agreement, corporations would reallocate some of their profits to nations where their sales are made—a total designated as Amount A. The draft contains the first details on which countries would lose revenue as a result of reallocation.

The reallocation of profits is important for the US, as it is home to several of the large multinationals that would be most affected by the deal.

Congress has been reluctant to embrace the deal due to concerns the US would lose out on tax revenue. If there was a decline in revenue under the plan, it would become more unlikely for them to greenlight it.

The treaty to enforce the relocation of Amount A will lay out which taxes select countries will need to withdraw as part of the deal. That withdrawal would apply to all companies, according to the draft.

Isabel Gottlieb and Hamza Ali have more.

US-Hungary Treaty Reaction: House Ways and Means ranking member Kevin Brady (R-Texas), Senate Finance Committee ranking member Mike Crapo (R-Idaho), and Senate Foreign Relations Committee ranking member Jim Risch (R-Idaho) issued a joint statement Monday regarding the US Treasury Department’s announcement that it intends to withdraw from the US-Hungary tax treaty.

“Treasury’s latest tactic to force implementation of the OECD agreement is to withdraw from a longstanding bilateral tax treaty approved by Congress,” the statement said. “This is a transparent attempt to bully Hungary into hasty action on a global minimum tax and interfere in an internal European Union policy-making process. The move stands in stark contrast to the Biden Administration’s rhetoric about improving multilateral tax cooperation.”

Rettig on the Hill

The House Ways and Means Committee is planning to meet with IRS Commissioner Chuck Rettig on Thursday, following revelations that two former FBI leaders have been audited since Rettig took office, according to a House source.

Both Democrats and Republicans are expected to attend the meeting, the source said.

The meeting comes after the New York Times reported last week former FBI Director James Comey and former FBI Deputy Director Andrew McCabe were selected for rare audits in recent years. Both Comey and McCabe are disliked by former President Donald Trump, who appointed Rettig to the IRS position.

“Reporting that former FBI Director James Comey and former Deputy FBI Director Andrew McCabe were audited by the IRS has raised serious concerns about the possibility that former President Trump encouraged the IRS to investigate his perceived enemies,” Senate Finance Committee Chair Ron Wyden (D-Ore.) said late Monday.

The IRS also will brief the Senate Finance Committee on the agency’s audit program July 26, Wyden said.

“Members will have the opportunity to ask questions and hear directly from the commissioner,” he added.

Read more from Naomi Jagoda.

TIGTA Report

A new report from the Treasury Inspector General for Tax Administration found approximately 1,900 IRS employees hired between March 2020 and July 2021 still have not had their employment eligibility documents fully verified as of the start of this year.

Delays were allowed by the federal government due to the pandemic, but, the report said, the excessive deferrals may have risked the security of taxpayers’ information.

The report also found 11 individuals worked for the agency without having their identity documents physically inspected.

Syndicated Conservation Easements: The land deals known as syndicated conservation easements were prioritized by the IRS in its “Dirty Dozen” list of tax schemes, as the agency says they can be used to create large tax deductions. The practice also can affect the insurance industry, according to Michelle Concepcion of AmTrust Financial Services.

Concepcion, in a new Bloomberg Tax Insights piece, writes investors are filing lawsuits against those who created and promoted syndicated easement plans.

“These professionals have, in turn, been filing claims under their professional liability insurance policies, and significant fees can be incurred in defending such claims alone,” she writes.

Read more from Concepcion.

Premium Tax Credits: Senate Republican leaders sent a letter to the Congressional Budget Office and the Joint Committee on Taxation to request more information on the potential ramifications of making the American Rescue Plan Act’s temporary expansion of premium tax credits permanent.

The letter was dated Friday and sent by Sen. Lindsey Graham (R-S.C.), Sen. Richard Burr (R-N.C.), and Crapo.

“Record-high inflation, fueled by partisan spending and irresponsible policy initiatives, continues to erode working families’ wages and savings, imposing a regressive tax on those who least can afford it,” the letter said. “In light of these concerning conditions, policymakers must evaluate any new spending proposal with an especially critical eye towards its budgetary and economic impacts.”

What to Watch For

Treasury Nominee: Jay Curtis Shambaugh, nominee for Undersecretary of the Treasury for International Affairs, testifies Tuesday before the Senate Finance Committee.

Beyond the Beltway

UK: The windfall tax on gas and oil companies will not apply to electricity firms, according to a spokesperson for Prime Minister Boris Johnson, report Joe Mayes and Emily Ashton.

Former UK Chancellor of the Exchequer Rishi Sunak will set out his bid to be Britain’s next prime minister on Tuesday, pledging to cut taxes once inflation is under control. He is currently the front-runner in the contest, with the largest number of endorsements from his fellow MPs.