Global tax deal questioned due to US exclusion of offshore profits

A global deal on corporate taxation is still out of reach, despite the United States having approved a 15% tax on its own corporate profits.

he tax is part of President Joe Biden’s landmark $430 billion Inflation Reduction Act, which was expected to be approved by the U.S. House of Representatives on Friday.

But according to US Senator Joe Manchin, the deal does not include the companies’ “offshore” profits, meaning it is not in line with the 15% tax agreed last year by 137 countries, including the United States and Ireland.

“Our international companies, we haven’t done anything to make them uncompetitive in the global market,” Manchin said.

US tax applies to “book income” – or pre-tax income – of corporations earning more than $1 billion a year in profit.

But it exempts accelerated depreciation, tax credits and some other items, according to the US Tax Foundation think tank.

Manal Corwin, head of Washington’s national tax practice for KPMG consultants, told Reuters that the passage of the inflation law “does not align U.S. rules with the global minimum tax architecture.” agreed last year.

This agreement was negotiated by the Organization for Economic Co-operation and Development (OECD) and does not exempt tax credits, although the technical details are still being worked out.

The Irish government is consulting on how the 25% research and development tax credit and patent box can stay in line with OECD rules.

Meanwhile, the EU is still struggling to adopt its own version of the 15% tax after a recent attempt by Hungary to veto it, on the grounds that it could harm war-affected European businesses. in Ukraine.

While the 15% tax could bring Ireland more multinational revenue, the Department of Finance says a side deal transferring taxing rights to other countries could cost €2bn a year.

However, the department said in a strategy paper this week that “it remains very difficult to accurately estimate the impact at this stage” as the details are also being worked out by the OECD.

“The outcome of these discussions, coupled with future business decisions by multinationals, will have significant implications for our future corporate tax revenues, and the magnitude of the effect will only be fully known over time,” the document states. of strategy.