United States: Congressional reaction to OECD Pillars

In brief

Congress is currently considering a reconciliation bill, the Build Back Better Act (“BBB Act”), while the Organization for Economic Co-operation and Development (OECD) is issuing guidance and recommendations on significant changes to the international tax system. Although the United States is one of the founding members of the 38-member OECD, a question often arises as to what impact the actions of the OECD have on tax legislation in the United States. At the moment, the BBB Act has been reported out of the House Budget Committee and is in the House Rules Committee, where significant changes may be made to the proposed legislation. The Senate has yet to release any legislative text of the reconciliation bill.


Contents

Many members of Congress have signed on to letters expressing concern over implementing some of the OECD recommendations, or alternatively, enacting legislation prior to the OECD completing its work on reform of the international tax system. On 8 October, Senators Mike Crapo (R-ID), James Risch (R-ID) and Pat Toomey (R-PA) sent a letter to Treasury Secretary Janet Yellen “request[ing] a detailed response outlining the Administration’s proposed approach to [OECD] Pillar One implementation" by 15 October 2021. Crapo is the ranking member of the Senate Finance Committee, which has jurisdiction over tax and trade matters; Risch is the ranking member of the Senate Foreign Relations Committee, which has jurisdiction over tax treaties; and Toomey is the ranking member of the Senate Banking Committee, which has jurisdiction over export and foreign trade promotion. OECD Pillar One generally provides that a portion (i.e., 25%) of the residual profits of a multinational is allocated to market jurisdictions.

The three Republican Senators expressed concern that the Biden Administration would attempt to implement OECD Pillar One through a congressional-executive agreement or through legislation overriding existing treaties and not through the Senate treaty approval process (which generally requires two-thirds vote in the Senate). These Senators, and other observers, may be concerned that the Biden Administration’s views on implementing OECD Pillar One may be shaped by an article published in 2013 by Rebecca Kysar. Kysar currently serves as Counselor to the Assistant Secretary of the Treasury (Tax Policy) and is a professor at Fordham Law School. In her article, Kysar wrote that the Senate tax treaty approval process violates the Origination Clause in the Constitution (revenue bills must originate in the House). As a result, Kysar argued "that tax treaties must not be self-executing but instead must be implemented through legislation passed by both houses or else be approved as congressional-executive agreements." Rebecca M. Kysar, On the Constitutionality of Tax Treaties, 38 Yale J. Int’l L. 1 (2013).

Senators Crapo, Risch and Toomey also noted that Secretary Yellen had made a statement that implementation of OECD Pillar One would be “largely revenue neutral” because “we [the United States] will be on both the receiving and giving end of the proposed profit reallocations.” The Senators wrote that despite repeated requests, “Treasury has not detailed how much profit would be reallocated from the United States and to which foreign countries.”

On 4 August, eleven House Democrats (Bradley S. Schneider (D-IL), Ron Kind (D-WI), Mikie Sherrill (D-NJ), Stephanie Murphy (D-FL), Haley Stevens (D-MI), Terri A. Sewell (D-AL), Lizzie Fletcher (D-TX), Thomas Suozzi (D-NY), Vincente Gonzalez (D-TX), Steven Horsford (D-NV) and Angie Craig (D-MN)) sent a letter to House Ways and Means Committee Chairman Richard Neal (D-MA) urging a legislative approach “that reflects the substance and timeline of negotiations within the Organization for Economic Cooperation and Development (OECD) process. Enacting tax increases above and beyond the final implemented OECD agreement, or getting out too far ahead of our OECD partners, would risk US international competitiveness.” Later in the letter, after noting that the United States is currently the only country that imposes a minimum tax (i.e., GILTI) on the operations income of a foreign subsidiary of domestic companies, the eleven House members wrote, “Enacting tax policy in the US that is more burdensome than the eventual OECD implementation would increase the potential for foreign takeovers of US companies and could prompt a resurgence in corporate inversions.”

On October 8, three House Democrats, Tom O’Halleran (D-IL), Henry Cuellar (D-TX) and Lou Correa (D-CA) wrote to Speaker of the House Nancy Pelosi (D-CA) and Ways and Means Committee Chairman Neal encouraging House Leadership “to pause on moving forward with GILTI and international tax changes at this time.” They noted that “[w]e must find a new pathway to ensure that we do not move before the rest of the world on implementing a new GILTI regime, and that we do not institute new rules of the road, like a country-by-country regime.” If the United States waits on enacting international tax legislation, the three House members wrote, “it will allow Congress the opportunity to adjust the implementation of the policy based on how G-20 countries write their own GILTI regimes.”

A common theme of the two letters from the House Democrats is ensuring the competitiveness of US companies with their foreign counterparts. That can be achieved by not enacting legislation that is more burdensome than the eventual OECD implementation (4 August letter) and waiting to adjust legislation based on how G-20 countries write their own international tax rules (8 October letter).

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