There has been much discussion around proposed U.S. tax legislation to modify the current GILTI regime so that it meets the requirements of a “Global Minimum Tax” under the OECD’s Taxation of a Digital Economy Pillar II. One of the key components of this legislation would increase the minimum tax paid on GILTI from 10.5% to 15%.
In recent weeks Senator Joe Manchin publicly stated that he does not support this proposed change, effectively blocking the possibility of these changes making it through the legislative process. He shared his reasons for being against this proposed change indicating that he’s concerned about the current state of the economy and the impact raising tax rates would have on this challenged economy. He also cites that no other European country has yet implemented this global minimum tax of 15%. His fear is that implementing a U.S. global minimum tax where other countries don’t have one would be putting U.S. headquartered multi-nationals at a competitive disadvantage.
Yet in another twist to the plot just last week Senator Manchin came out in support of a U.S. domestic Corporation Alternative Minimum Tax (CAMT) of 15% as part of the Inflation Reduction Act. Could this be the Pillar II implementation in disguise? Well, Pillar II requires the Global Minimum Tax to be applied on a country by country basis, this proposed CAMT is on a worldwide basis so it doesn’t strictly meet the requirements of a Pillar II Global Minimum Tax. But could this be version of a 15% minimum tax that will somehow morph into a Pillar II compliant tax?
It is difficult to predict if this can be grandfathered in or easily adapted to meet the OECD criterion, however it is clear that this approach is certainly another delay in the implementation of the OECD Pillar II plan. This delay is yet another hurdle in the path of the OECD’s Taxation of a Digital Economy initiative with Pillar II or the Global Minimum Tax being a key component of this project.
It is uncertain if this will be a fatal blow to the Global Minimum Tax plan or a mere hiccup in what appears to be a long line of fairly significant hiccups.
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