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Build Back Better…Later?

28th December 2021

The U.S. government may institute laws and provide public services, but no one’s ever accused it of making anything easy. Case in point: the Build Back Better Act. With a slew of tax proposals aimed at wealthy individuals and corporations, the bill made it through the House and just needed the Senate to cross the finish the line. After a number of revisions, an end-of-2021 deadline miraculously wasn’t looking so out of the question—until Sunday, when Senator Joe Manchin, of West Virginia, refused to back it. Now whether the $2 trillion plan lives or dies will depend on how things unfold in 2022. The delay, however, isn’t the worst problem: Build Back Better includes proposals that would affect how the U.S. aligns with the OECD’s global tax plan, which in turn could jeopardize the support of the roughly 137 other countries involved. While the OECD’s Pillar Two proposes a minimum tax on global income, the U.S. already has something similar in place: The global intangible low-taxed income (GILTI). This minimum tax stems from income derived on intangible assets. Trouble is, at the moment, Pillar Two and GILTI are incongruent—GILTI’s 10.5% tax comes in shy of the OECD’s proposed 15%. Build Back Better was instrumental in solving that problem, raising GILTI to the OECD’s minimum 15%, as well as instituting other changes that bring the two initiatives closer together. In a true team spirit, the OECD even includes a provision that would allow GILTI to substitute for the global minimum tax. Without U.S. support, however, Pillar Two appears vulnerable. The U.S. played a major role in getting other countries to sign on for the global deal. If it’s not onboard, the worry is that other countries won’t be either. The result? Countries could reinstate unilateral digital taxes, targeting U.S.-based tech giants, creating county-by-country headaches for tax executives, who will have to keep track of unilateral laws. And let’s not forget the clouds of tax uncertainty that will hang over multinational companies, because without knowing what’s ahead, it’s impossible to strategize for the future.