With help from Doug Palmer
ANOTHER COOK IN THE KITCHEN: There’s a new player now when it comes to international tax talks — the United Nations.
It was a development that flew somewhat under the radar, at least here Stateside, coming the day before Thanksgiving.
But the U.N. voted on Wednesday, rather definitively, to give itself a greater say in global tax matters, as Pro Tax’s Benjamin Guggenheim reported — in what amounted to a big victory for developing nations who have complained that they’ve been marginalized in negotiations run through the Organization for Economic Cooperation and Development.
The OECD was the conduit for the talks over the current global tax deal — the first pillar of which seeks to reallocate where large companies pay taxes, with the second installing a global minimum tax.
Several key governments have moved to implement Pillar Two, while Pillar One remains in real trouble ahead of a year-end deadline — and neither appear likely to gain approval in the U.S. anytime soon.
How this new U.N. group will affect that process remains to be seen. Still, a U.S government official told Pro Tax something that others in the D.C. tax community were noting — that it sounds rather duplicative to have both the OECD and the U.N. working on similar tax matters.
It’s also something of a rebuke to the OECD, whose job in many ways — difficult though it may be — is to generate global consensus on big, pressing tax matters. (For their part, OECD officials plugged their work in the wake of Wednesday’s U.N. vote.)
MORE ON EVERYTHING in a bit, but first thanks for finding us and this post-Thanksgiving edition of Weekly Tax. Hope there was safe travels for everyone.
Let’s do a weird anniversary tangentially related to taxes: Today marks 18 years since performers like Aerosmith, 50 Cent and Kenny G performed at the Rainbow Room in New York — as part of a $10 million bat mitzvah, of course. (And how was that bat mitzvah paid for? Yes, widespread fraud, including tax evasion.)
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LOOKING TO THE NORTH: It’s now just about a month until Canada could implement its digital services tax, despite the fervent objections of the Biden administration and a bipartisan group of other policymakers in the U.S.
As it stands, Ottawa isn’t backing away from the DST, with Prime Minister Justin Trudeau’s government including it in its Fall Economic Statement — though, as Pro Trade’s Doug Palmer noted, Canada hasn’t said when it might pass the legislation needed to put the tax into effect.
Meanwhile, the Biden administration keeps trying to warn Canada off that decision, even as it also pushes for widespread approval of the first pillar of the global tax deal — something that’s basically going nowhere fast these days.
A spokesperson for the U.S. trade representative said the agency “continues to have serious concerns about Canada’s proposed digital services tax and opposes all measures that discriminate against U.S. businesses.”
Katherine Tai, the U.S. trade representative, “looks forward to working with the government of Canada to find a productive way forward,” the spokesperson said.
The U.S. Chamber of Commerce voiced similar concerns right before Thanksgiving, with the group saying it was “deeply concerned” that Canada still planned on pressing ahead with its DST and urged Trudeau and company to “reverse course.”
So, we wait: As we’ve noted, Canada’s decision to move forward next year with a digital tax, which the government projects would raise about C$7.2 billion over five years, likely puts it more in the crosshairs of the U.S., where officials have vowed to retaliate.
Practically every other country interested in a DST agreed to hold off at least until the end of this year, to allow more time for the Pillar One negotiations. But with those almost certain to fail, it now remains to be seen how cautiously those other governments proceed next year with digital taxes.
DID YOU SAY SOMETHING ABOUT EXPENSING? The Conservative government in the U.K. has been making a lot of noise recently about cutting taxes, as it trails in polls to the Labour opposition.
A lot of that chatter has been about tax cuts in the future. But Prime Minister Rishi Sunak’s government did announce plans to cut taxes in a pretty substantial way last week — making permanent full expensing for capital investments.
A lot of tax experts are big fans of full expensing, particularly those who lean toward the right, believing it can provide a particularly strong jolt to economic and job growth. As you might remember, there was even something of a debate back in 2017 over whether Republicans in Congress should prioritize cutting the corporate tax rate or allowing those immediate write-offs for capital investments.
Republicans did end up enacting full expensing in their 2017 tax law. But the Tax Cuts and Jobs Act also set up those immediate deductions to start phasing out after 2022 — something that GOP lawmakers are now pushing to reverse, though the prospects for a tax deal in the near-term aren’t promising.
Now, back to the U.K.: Advocates for full expensing hope that its implementation there might be the start of a trend.
Daniel Bunn, the head of the right-leaning Tax Foundation, argued that full expensing isn’t as common as it should be around the world. But he added that the global minimum tax, which puts some limits on the kind of tax incentives that governments can offer, might make policymakers more open to the idea.
“More governments will be looking for investment-friendly tax policies that also play well with those rules. Full expensing fits the bill,” Bunn wrote to Weekly Tax in an email.
The stats right now: Currently, 38 countries are members of the OECD, essentially a collection of advanced economies.
Bunn said that six of those countries have had full expensing in recent years — Canada, Chile, Estonia, Latvia, the U.S. and now the U.K.
Canada and the U.S. are currently phasing out full and immediate write-offs, while it expired at the end of 2022 in Chile. Around a third of OECD countries, or 13 in all, had some kind of accelerated depreciation recently, Bunn said.
Reuters: “Portugal’s main opposition vows tax cuts, higher pensions ahead of election.”
Associated Press: “New Zealand’s new government promises tax cuts, more police and less bureaucracy.”
More from Reuters: “Argentina hikes taxes on dollar savings and bank card purchases ahead of Milei taking power.”
Montana Free Press: “Montana Supreme Court says counties wrong on 95-mill tax issue.”
St. Louis Post-Dispatch: “A $600K mistake? St. Louis forgot to tax recreational pot sales.”
Chattanooga Times Free Pass: “Tennessee Democratic lawmakers mount push to eliminate state’s 4% grocery store food tax.”
The Wall Street Journal: “IRS Delays Tax Deadlines Set by Congress. It Could Cost $8 Billion.”
Financial Times: “Global tax clampdown fuels boom in insurance against costly rulings.”
Tax Notes: “Moore Is Not the End of TCJA Challenges.”
Kenny G’s last name is Gorelick.
