Global tax treaty in doubt due to US exclusion of offshore profits


A global corporate tax treaty is still out of reach, even though the US has approved a 15 percent tax on the profits of its own companies.

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

But according to US Senator Joe Manchin, the deal doesn’t include the companies’ “offshore” profits, meaning it doesn’t align with the 15 percent tax agreed last year by 137 countries, including the US and Ireland.

“Our international corporations, we have done nothing that would make them uncompetitive in the global market,” Mr. Manchin said.

The U.S. tax applies to the “book income” — or income before taxes — of companies that make profits in excess of $1 billion a year.

However, accelerated depreciation, tax credits and certain other items are exempt, according to the US Tax Foundation think tank.

Manal Corwin, Washington national tax practice chief at consultancy KPMG, told Reuters that passage of the inflation bill “doesn’t bring US rules in line with the global minimum tax architecture agreed last year.”

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

The Irish government is deliberating on how to keep the 25% research and development tax credit and patent box compliant with OECD rules.

Meanwhile, the EU is still struggling to pass its own version of the 15 percent tax, after Hungary recently vetoed it on the grounds that it could hurt European companies hit by the Ukraine war.

While the 15 percent tax could bring Ireland more multinational revenue, the Treasury says a parallel deal to shift taxing rights to other countries could cost €2 billion a year.

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

“The outcome of these discussions, together with the future business decisions of multinational companies, will have a significant impact on our future corporate tax revenues, and the extent of the impact will only be fully known over time,” the strategy paper reads. Global tax treaty in doubt due to US exclusion of offshore profits

Fry Electronics Team

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