Joe Biden’s plans to overhaul the international tax system face mounting opposition from his Republican opposition who have called the proposals “crazy” and are threatening to block the historic deal’s passage in the US.
Treasury secretary Janet Yellen has led the Biden administration’s attempts to broker a global agreement on how companies are taxed, which comes amid a wider push to reshape corporate taxation in the US.
Those efforts were rewarded over the weekend when the G7 group of wealthy nations backed a global minimum rate of at least 15% and agreed that countries should be able to tax some of the profits made by big companies based on the revenue they generate in that country, rather than where they are based for tax purposes.
But as Biden heads to London for the G7 summit, the US-led plan faces stiff opposition in Washington, where senior Republicans are already lining up to kill the deal. Former Trump administration economic adviser Kevin Hassett told Yahoo Finance on Tuesday it “isn’t going to happen”.
With the 100-seat Senate evenly split between Democrats and Republicans, Biden will struggle to pass any changes to international tax treaties with bipartisan support and may be forced to try and pass a bill with only Democratic votes.
Pat Toomey, a Republican senator from Pennsylvania, has called the global minimum tax “crazy”.
“Certainly the whole fact that they had to try to persuade all these other countries to make sure they raise their taxes is a confession of the damage we’re doing to our own country,” Toomey said. “They certainly wouldn’t have the votes to approve a treaty of this kind that they’re contemplating.”
Republican Senator John Barrasso of Wyoming, the chair of the Senate Republican Conference, called the plan “anti-competitive, anti-US, and harmful for us as we try to continue to grow the economy at a time when we’re coming out of a pandemic.”
Hassett told Yahoo Finance: “The G7 has no authority over this. For the EU to do something, they basically need unanimity, and there’s no way to rush that.
“For the US, there’s a big question whether it would pass, too, because if you analyze it, basically what we’re doing is giving foreign countries a hunting license to get revenue from US firms that they couldn’t get before.”
The agreement comes as the Biden administration attempts to raise US corporate taxes from 21% to 28%. A rise in global rates is seen as key to ensuring that US companies do not opt to move operations offshore when rates rise.
In exchange, G7 countries have agreed to end digital services taxes on US tech companies that have led to threats by the Biden administration to impose retaliatory tariffs on a range of goods from countries including the UK, Italy, Spain, Turkey and India.
International negotiations over the treaty are likely to be long and complex. Britain is seeking to exclude the City of London’s financial services companies from the global tax overhaul.
Chancellor Rishi Sunak is concerned that Biden’s proposal could prove to be a significant deterrent to banks running many of their operations from London, compounding the impact of Brexit that resulted in a shift of financial trading to Amsterdam.
It is unclear whether all forms of financial services – ranging from banks to investment funds, insurers and hedge funds – would be excluded in a process still to be negotiated.
Chris Sanger, the global government and risk tax leader at the accountancy firm EY, said: “There is an assumption by a number of countries that there would be an exception for financial services. The question is now how you manage these exceptions without all the complexities they bring.”
Sunak lauded the tax agreement as “historic” when G7 finance ministers agreed the framework on Saturday, adding that it would force “the largest multinational tech giants to pay their fair share of tax in the UK”.
However, gaps remain in the deal, with key details still to be hammered out between the broader G20 group of countries – including China, India and Brazil – at meetings in Venice next month. The changes will then be negotiated between 139 countries in a process overseen by the Organisation for Economic Cooperation and Development, with the aim of reaching a final agreement by October.
Yellen has called the weekend agreement “historic” and said it would “end the race to the bottom in corporate taxation and ensure fairness for the middle class and working people in the US around the world.”