U.S. Treasury's Yellen presses Poland on global minimum tax

Reuters | Washington DC | Updated: 16-05-2022 15:42 IST | Created: 16-05-2022 15:29 IST
U.S. Treasury's Yellen presses Poland on global minimum tax
US Treasury Secretary Janet Yellen (Photo Credit - Reuters) Image Credit: ANI
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U.S. Treasury Secretary Janet Yellen thanked Polish leaders on Monday for hosting millions of Ukrainian war refugees but pressed them to back the European Union's plans to implement a 15% global corporate minimum tax. Poland is the lone holdout in the European Union's implementation plan, having vetoed a compromise in April to launch the 137-country deal reached last October aimed at ending a competitive downward spiral in corporate tax rates.

Poland's new finance minister, Magdalena Rzeczkowska, has sought a "legally binding" link between the global minimum tax and the other pillar of tax negotiations - a reallocation of some taxing rights for large, highly profitable multinationals to "market countries" where their services and products are sold. For some countries participating in the Organisation for Economic Co-operation and Development's negotiations, that so-called Pillar 1 plan is the more desired global tax change, allowing them to collect revenue from large U.S. technology giants such as Google owner Alphabet, Facebook owner Meta, Amazon.com and Apple.

But the reallocation pillar was not part of the October deal and is not fully developed. That more complex plan requires changes to international tax treaties, and Rzeczkowska has expressed concerns that if it fails, the global minimum tax would put undue burdens on European businesses. French Finance Minister Bruno Le Maire, current chair of EU finance ministers, has expressed skepticism over those arguments amid legal disputes between Poland and the EU.

EXTRA REVENUE Yellen met Polish Prime Minister Mateusz Morawiecki and was due later to meet Rzeczkowska and central bank governor Adam Glapinski.

In a statement issued by the U.S. Treasury after the Morawiecki meeting, Yellen underscored the need for Poland to move forward on the tax deal because it will "raise crucial revenues to benefit the citizens of both Poland and the U.S." The EU Tax Observatory has estimated https://www.taxobservatory.eu/wp-content/uploads/2021/10/Note-2-Revenue-Effects-of-the-Global-Minimum-Tax-October-2021.pdf that the tax would bring Poland 2 billion euros ($2.08 billion) in annual revenue, which could help defray the high costs of hosting Ukrainian refugees.

"Importantly, these revenues are going to be paid by large multinational corporations, not Polish individuals or small businesses," said a source familiar with the tax discussions, adding that it would allow Poland to compete on the basis of its skilled and low-cost workforce and economic fundamentals. The source was not authorized to speak publicly about the issue and declined to be identified. Yellen "expressed her gratitude at the generosity Poland has shown in welcoming refugees" from Ukraine and discussed Europe's energy situation and screening of investments into Poland to protect national security, the Treasury said.

A statement from the prime minister's office made no mention of the tax deal but focused on coordinating international efforts to put pressure on Russia to end its war in Ukraine and reduce dependence on Russian energy. "Poland will continue to call for further tightening of EU sanctions, especially in the energy, finance, transport and services sectors. In order to successfully stop the war machine, we must reduce Russia's economic and military potential as soon as possible."

U.S. UNCERTAINTY Yellen also needed to reassure Polish officials about growing uncertainties over U.S. implementation of the global minimum tax, said Manal Corwin, head of KPMG's Washington national tax practice and a former U.S. Treasury official.

The U.S. Congress needs to approve changes to the current 10.5% U.S. global overseas minimum tax known as "GILTI," raising the rate to 15% and converting it to a country-by-country system. The changes were initially included in U.S. President Joe Biden's sweeping social and climate spending bill, which stalled last year after objections from centrist Senate Democrats.

Prospects for a slimmed-down spending package with the tax changes look increasingly difficult as mid-term congressional elections approach and as lawmakers voice concerns about more spending amid high inflation. But Corwin said lack of U.S. implementation will likely not halt the other 136 countries from proceeding, especially if Poland can be brought on board with EU implementation.

"If the EU directive is successful, I think the rest of the world is going to move with or without the U.S. changes," Corwin said. "So my sense is it's not as concerning to countries as it might have been before." Tax experts say that EU implementation would ultimately put pressure on the United States to adopt the changes because some taxes paid by U.S. multinationals under the system would flow to foreign jurisdictions rather than to the U.S. Treasury. ($1 = 0.9593 euros)

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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