company had an effective tax rate below 15 percent, the United States alone would collect the revenue on our own companies, thereby turning off any other country's UTPRs. Furthermore, the Greenbook's UTPR proposal would apply a domestic minimum tax (a qualified domestic minimum top-up tax or QDMTT under the Pillar 2 framework) that would ensure that if an in-scope U.S. It would do so to the extent an MNE is not paying an effective tax rate of at least 15 percent in each jurisdiction in which the MNE has profits. Similar to the BEAT reforms in the House-passed Build Back Better legislation, the Greenbook's UTPR proposal would enforce the global minimum tax against foreign MNEs by denying U.S. This commitment is further evidenced in our recently released General Explanations of the Administration's Fiscal Year 2023 Revenue Proposals (also known as the "Greenbook").
companies continue to benefit from important tax incentives that promote U.S. The Biden Administration remains committed to implementing the international agreement and to ensuring that U.S. This general rule is included in the recently released Model Rules and its Commentary, with this Administration insisting on clarification that credits, like the direct pay energy credits in the House-passed Build Back Better legislation, mitigate the reduction of a corporation's effective tax rate, and therefore generally do not give rise to liability under other countries' UTPRs. Indeed, in the 2020 Pillar 2 Blueprint as negotiated by the prior administration, refundable tax credits increase the taxpayer's income rather than reduce the taxes treated as paid by the taxpayer. To the extent that a multinational entity (MNE) and its subsidiaries in any country do not pay an effective tax rate of 15 percent, countries that have enacted a global minimum tax, including the UTPR, can allocate among themselves a top up tax to bring the effective tax rate to that level if the MNE has operations in their jurisdictions.Īt the same time, the Pillar 2 Model Rules recognize that jurisdictions must be able to continue implementing important incentives through the tax system. UTPR has been a feature of Pillar 2 for a number of years, and was detailed in the publicly available 2020 Pillar 2 Blueprint, with input by and support from the prior administration. This rule also acts as a powerful incentive to join the global minimum tax regime. The OECD agreement is a once-in-a-generation accomplishment for economic diplomacy that stabilizes the eroding international tax system, levels the playing field for American business, and ends the race to the bottom on corporate tax rates that has disadvantaged workers and families.Īs your letter mentions, the Pillar 2 Model Rules as released in December 2021 contain an enforcement rule, known as the UTPR, which ensures that countries follow through with their commitment to enact the global minimum tax. Thank you for your February 16, 2022, letter regarding the Organisation for Economic Co-operation and Development/G20 political agreement on reforming the international tax system.
The following is the letter in response, dated 29 March 2022, from Assistant Secretary for Legislative Affairs, Jonathan Davidson.
Senator Mike Crapo (R-ID), Ranking Member of the Senate Finance Committee, sent a letter to Treasury Secretary Janet Yellen in February 2022 regarding concerns with the OECD's two-pillar solution for international tax reform.
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