The global corporate tax overhaul, which consists of two pillars, is facing the risk of collapse due to domestic US politics.
The overhaul aims to address outdated rules of international taxation and discourage multinational companies from shifting profits to low-tax countries. The first pillar of the deal, designed to target major US-based digital giants like Google and Amazon, focuses on reallocating taxing rights on approximately $200 billion in profits to the countries where these companies operate.
The second pillar aims to establish a global minimum tax rate of 15% for companies with revenues exceeding 750 million ($820 million). It allows governments to impose an additional tax on revenues earned in countries with lower tax rates, thus ending the race to the bottom on tax rates that has persisted for decades.
However, the first pillar faces significant challenges and is at risk of failure. Peter Barnes, a tax lawyer and the head of the International Fiscal Association, expressed doubts about its future success.
Originally, countries had hoped to conduct a high-level signing ceremony in July to establish a new multilateral treaty necessary for the redistribution of taxing rights. However, officials now anticipate having a viable text ready by then, as addressing concerns from various countries has proven to be challenging.
Even if the details are resolved by July and G20 leaders approve the treaty at a summit in September, officials have expressed concerns about the ratification process in the US Congress. The opposition from Republicans and the lack of enthusiasm among Democrats pose significant obstacles to its successful passage.
The fate of the global corporate tax overhaul remains uncertain, with the first pillar facing a challenging path forward. The ability to reach a consensus among countries and obtain the necessary approvals and ratifications will determine the future of this ambitious international taxation reform.