US corporate tax shift ‘likely in 2022’

US Treasury Secretary Janet Yellen yesterday said a newly endorsed mechanism to allow more countries to tax large, highly profitable multinational companies may not be ready for consideration by lawmakers until spring 2022.

Yellen told a news conference after a G20 finance leaders meeting in Venice that the OECD re-allocation of taxing rights was on a “slightly slower track” than a global corporate tax of at least 15 percent as part of a tax deal among 132 countries.

G20 finance ministers and central bank governors endorsed the deal over the weekend, but questions remain over the ability of US President Joe Biden’s administration to persuade a deeply divided Congress to ratify the changes.

Yellen’s comments suggest a two-step process for implementing the OECD tax deal, with the global minimum tax moving first.

She said she hoped to include provisions to implement the so-called “Pillar 2” minimum tax into a budget “reconciliation” bill this year that Congress could approve with a simple majority, potentially without Republican support.

The “Pillar 1” portion of the agreement would end unilateral taxes on digital services in exchange for a new mechanism that would allow large profitable companies — including technology giants such as Google and Facebook — to be taxed in part by countries where they sell products and services, rather than just those hosting their headquarters or intellectual property.

This will require a multilateral tax agreement that will take time to negotiate, a Treasury official said.

“Pillar 1 will be on a slightly slower track. We’ll work with Congress,” Yellen said, when asked whether a two-thirds majority would be needed in the Senate, which is normally the requirement for international treaties.

“It may be ready in the spring of 2022 and we’ll try to determine at that point what’s necessary for its implementation,” Yellen said.

It was unclear how the 2022 timing would affect the withdrawal of unilateral digital services taxes. Yellen said EU countries had agreed to withdraw such taxes when asked how she viewed an expected European Commission proposal for a new digital levy to fund pandemic relief.

“It’s really up to the European Commission and the members of the European Union to decide how to proceed,” she said.