Implementation of the Organisation for Economic Cooperation and Development’s (OECD) Pillar 2 global minimum tax remains stalled in the U.S., as proposed changes to the current U.S. global minimum tax — the tax on global intangible low-taxed income (GILTI) — were left out of the recently enacted tax reconciliation bill, known as the “Inflation Reduction Act” (H.R. 5376).
While the Inflation Reduction Act does include a new 15% minimum tax on financial statement income for certain large corporations, the new tax is not a qualified domestic minimum tax per OECD parlance. Previous proposals to change GILTI that some lawmakers hoped would bring the regime in line with Pillar 2 — including amending GILTI to apply on a country-by-country basis and increasing the GILTI effective tax rate to 15.8% — were not included in the final text of the Inflation Reduction Act and now appear unlikely to be enacted this year. For more information on the Inflation Reduction Act, see our prior story, “President Biden signs major reconciliation tax bill.”
If Democrats cannot pass conforming legislation this year, President Biden will be forced to work with a new Congress in 2023. Recent polling suggests there is a possibility that Republicans could control the House — and, possibly, the Senate — after November’s midterm elections. Republicans are unlikely to support international tax reform (i.e., conforming amendments to GILTI) without significant changes. Conversely, if Democrats can retain control of both the House and the Senate after the midterm elections, passage of legislation conforming GILTI with Pillar 2 would be more likely in 2023 — though passage would still be uncertain. Thus, the outcome for enactment of international tax legislation in the near-term is quite ambiguous — and could prove difficult. Still, the looming Pillar 2 deadline could help spur action.