Global tax deal could hurt US companies, says letter requesting OECD guidance

An agreement between the United States and G7 countries on global minimum tax could hurt U.S. companies, the Association of International Certified Professional Accountants said in a letter to the Organisation for Economic Co-operation and Development (OECD) in which it requested quick guidance and made recommendations.

The letter addresses guidance and recommendations on the OECD’s Pillar Two framework co-existing with U.S. tax rules for U.S. multinational enterprises (MNEs) in a side-by-side system.

In its letter, the Association requests clear and consistent guidance from global tax authorities; fair treatment of U.S. tax credits; and quick action to help companies avoid unnecessary costs and confusion. The letter also provides recommendations on timing of the guidance and on substance-based, nonrefundable tax credits, such as the Sec. 41 research credit.

“The G7 agreement has been broadly welcomed by the U.S. business community; however, until the agreement is finalized, companies must continue to comply with the reporting obligations,” Reema Patel, CPA, senior manager–Tax Policy & Advocacy for the Association, said in a news release. “The Association recommends the OECD and Treasury issue harmonized guidance to minimize unnecessary administrative and reporting costs for U.S.-based MNE groups.”

On June 28, Treasury issued a G7 statement on global minimum tax, proposing an agreement with the other G7 countries that includes a “side-by-side system” to “protect U.S. MNEs from certain international tax rules that could make them pay extra taxes in other countries, doubling their tax burdens,” the news release said.

Those rules are part of the Pillar Two framework, which is meant to stop companies from avoiding taxes by shifting profits to low-tax countries. However, the rules as written “could unfairly hurt” U.S. companies and make corporate compliance confusing and expensive, the news release said.

Nonrefundable tax credits, such as the Sec. 41 research credit, are treated unfairly when compared to similar credits in other countries, the news release said.

“This structural inconsistency risks undermining the competitiveness of U.S. companies, discouraging domestic research and development activity, and creating distortions by reducing effective tax rate calculations in ways that do not reflect the taxpayer’s true tax burden,” the letter said.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.