Several senior Republicans in the US Senate rejected the G7 agreement on a global minimum corporate tax rate. The agreement allows more countries to tax large multinational companies, but it also raises questions about the ability of the United States to implement the agreement.
Republican Senator John Barrasso spoke of a distortion of competition and a deal that would hurt the American economy. His colleague, Senator Pat Toomey, said the agreement would transfer tax revenue from the US Treasury to other countries.
The Republican opposition may push President Joe Biden to use budgetary measures to push the initiative through Congress. He just needs the support of the Democrats for that. But lawyers and tax experts question whether such an international treaty could pass the Senate without the need for a two-thirds majority. The split in the Senate between Republicans and Democrats is now 50 to 50 and so Republican support is essential.
In the landmark agreement, the finance ministers of the Group of Seven major industrialized nations agreed to target a minimum global tax rate of at least 15%. Furthermore, the profits of large corporations may be levied additionally in the countries in which they are made. US Treasury Secretary Janet Yellen said an “unprecedented major commitment” would end what she called a race to the bottom of global taxes.
The G7 countries have also agreed to end taxes on digital services, but the timeline for doing so depends on the implementation of the new rules. The agreement is a precursor to a broader agreement in the G20 and 140 countries involved in international negotiations over the taxes that big companies such as Alphabet, Amazon, Apple and Facebook must pay.
The United States Constitution grants the president the right to enter into international treaties with the approval of two-thirds of the Senators present. If the deal could be packaged as a budget issue, an absolute majority would suffice. When votes in the Senate are tied, Vice President Kamala Harris’ vote is decisive.
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