The Cloakroom: the latest in tax policy
As I noted last week, the current chaos in the House Republican conference has led to a vacant Speaker of the House chair. As this week concludes, the Speaker position remains unfilled as Speaker-designate Steve Scalise (R-LA) withdrew from consideration when it became clear that he could not count on the 217 votes needed to win the Speaker election on the House floor. The GOP then nominated House Judiciary Chair Jim Jordan (R-OH). House Republicans are expected to hold a floor vote to elect a new Speaker next week. However, it is unclear if Jordan can secure 217 votes from his colleagues. Without a Speaker, the House is paralyzed and unable to move forward on substantive legislation.
There are major pressing actions that The House needs to consider once it elects a new Speaker and gets back to business. These include approving all outstanding appropriations bills to fund the government by November 17. The House is also under pressure to consider an aid package for Israel and Ukraine. Of concern to the DC tax community is when the House will be able to consider The House Ways & Means Committee’s tax package that was approved by the committee in the spring. There will likely be little time for the House to effectively consider major legislation like the GOP tax package as the House adjusts to the chaos of a leadership change and grapples with the appropriations challenge in the coming weeks.
?The Cloakroom Says:
?It is incredibly frustrating to see the House Republican’s inability to keep the House on track at the expense of considering important and critical legislation such as the aforementioned tax bill.? Clearly, business groups like the National Association of Manufacturers (NAM) would like to see Congress do something. We can only hope they will ultimately elect an effective Speaker committed to bringing the tax package to the House floor by the end of this year. As always, we will closely monitor the situation and report any new developments as they occur.
Global Taxation
OECD Releases New Digital Taxation Treaty
This week, the OECD released the text of a multilateral treaty to enact Its Pillar I digital taxation plan. The Multilateral Convention to Implement Amount A of Pillar I would codify taxing rights to revenues from digital transactions of large multinational companies, many of which are based in the U.S., such as Gooigle, Amazon, and Apple.
To enter into force, the 30 countries that are home to at least 60% of affected multinational companies must ratify the treaty. This means that because the U.S. is home to some of the largest affected companies, U.S. ratification will be critical to the ultimate success of the pact. If a country ratifies the treaty, it must drop any existing digital services tax (DST) it may have in place.
?The convention may present some challenges to our neighbors to the north as Canada is looking to enact a DST? by 2024. U.S. ratification isn’t certain, given the vocal opposition to the OECD plan we’ve seen and heard from House and Senate Republicans this year.? For example, almost immediately after the OECD announced the release of the convention, ranking Republican on the Senate Finance Committee, Senator Mike Crapo, announced his opposition to any digital services tax that targets U.S. companies. At the same time, The Treasury Department issued a request for public comment on the convention. The deadline for comments is December 11, 2023.
The Cloakroom Says:?
It is hard to say what the prospects for this convention (and Pillar I) are when you consider the level of opposition to new global taxes from the International business community and Republicans on Capitol Hill. As I have said previously, The future of Global taxation rests on the outcome of the 2024 presidential and Congressional elections. If the Democrats succeed next November, Pillars I and II could become a reality. Conversely, if Republicans prevail,? U.S. approval of the plans would likely be doomed. Another challenge is the requirement in the U.S. that all conventions and treaties require two-thirds of the Senate for approval. Given the current makeup of the Senate, that seems unlikely, even if there is significant turnover in the Senate next fall.
As always, The Cloakroom will continue to monitor the situation.
Elsewhere in global taxation:
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Ireland releases budget for 2024
The Irish Ministry of Finance has released its 2024 budget this week. Receiving Kudos from The Wall Street Journal (subscription required) Highlights include:
Tax Administration and Accounting Policy
New Paper Debunks Idea of raising taxes on the rich and corporations to fund? new government spending plans
Analysis Concludes that TCJA did little to change the amount of taxes paid by U.S. Corporations on Foreign Income
IRS says Microsoft owes $29 Billion in back taxes, vows to appeal. More details on Microsoft's back taxes case
Office of Management & Budget (OMB) will no longer review tax regulations.
Recently, The Department of the Treasury reached an agreement with the Office of Management and Budget’s? Office of Information and Regulatory Affairs (OIRA) to no longer review new tax regulations. The Trump Administration, via Executive Order, had? initiated the practice approximately five years ago
IRS says the Tax Gap has increased, CATO says it's not a big deal
The IRS recently announced that the projected tax Gap, the difference between taxes owed and taxes collected, increased by about? $138 billion for the three-year period ending in 2019.
The Cato Institute seems to disagree with the IRS’ claim that the increase is insignificant, ? seemingly downplaying tax cheating in the U.S.
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