Friday, July 1 2022

Dear Secretary Yellen:

The undersigned organizations represent thousands of American businesses and nonprofit organizations actively engaged in a wide range of economically and socially desirable activities encouraged by Congress and the administration through the tax system.

Our members’ activities include investing in research and development, investing in affordable housing, hiring disadvantaged workers, investing in struggling communities, investing in renewable energy, export of high-value goods and services and the financing of state and local infrastructure projects. These activities – which Republican and Democratic administrations and Congresses have consistently encouraged through targeted tax credits, deductions and exemptions – translate into significant benefits for the economy and society as a whole.[1] Without these tax incentives, the economic return from these activities would be insufficient to sustain the current level of investment despite their high economic and social value.

To support these activities, immediate action is needed to modify the recent OECD model rules for the implementation of a global minimum tax of 15%.[2] According to the calculation of the Model Rules for Effective Tax Rates (ETRs), tax incentives or unqualified tax credits could reduce a company’s effective corporate tax rate on its US-source income below 15%, even if the statutory tax rate is much higher. 15 percent. This would result in the application of the “UTPR” of the model rules for these companies, which would result in the payment of additional taxes on US source income in countries that have adopted the rule.[3] Without changes to the Model Rules, the tax incentive to engage in these targeted US activities will be sharply reduced, resulting in lower investment and diminished economic and social benefits to the United States.[4]

The lack of protection in the model rules for these tax incentives stands in stark contrast to the actions taken by the administration and Congress to protect these incentives in other legislation.

For example, the 15% minimum tax on large business accounting profits proposed by the administration and passed by the House of Representatives in HR 5376, the Build Back Better Act, preserves the full value of incentive tax credits. Similarly, in light of the Base Erosion and Anti-Abuse Tax (BEAT) revisions in HR 5376, the House of Representatives expanded current law exemptions from BEAT incentive tax credits, thereby preserving the full value of these credits.

Based on recent IRS data, U.S. corporations within the scope of the OECD Model Rules claim approximately 70% of incentive tax credits and 80% of tax-exempt interest reported by all companies.[5] While the OECD model rules discourage companies currently making these investments from continuing to do so, there is no other pool of capital from other companies or investors to make these investments. All companies and investors who continue to make these investments will demand a higher return to offset the potential loss of tax benefits from these incentives. Moreover, to the extent that these targeted investments continue to be made by taxpayers, the US tax incentives that are clawed back by the UTPR would not ultimately increase US tax revenue, but rather increase foreign tax revenue due to the increase in foreign taxes imposed on the country. overseas operations of US companies.

The OECD Model Rules directly contravene the intent of current and past administrations and Congresses to encourage targeted investments and activities that generate high economic and social benefits in the United States.

We urge the Treasury Department to negotiate changes to the OECD Model Rules that will preserve the full value of these important, bipartisan, and longstanding tax incentives.

Truly,

Alliance for Competitive Taxation

American Bankers Association

american chemistry board

American Council of Life Insurers

American Forestry and Paper Association

American Petroleum Institute

American Property and Casualty Insurance Association

Business Roundtable

Global Trade Alliance

Information Technology Industry Council

Institute of International Bankers

National Association of Manufacturers

National Foreign Trade Council

Securities and Capital Markets Industry Association

Silicon Valley Tax Directors Group

Software Finance and Tax Executives Council

Tech Net

United States Chamber of Commerce

United States Council for International Trade

[1] Examples of these bipartisan and long-standing tax incentives include the tax exemption of interest paid on state and local debt (included in the 1913 income tax), accelerated depreciation (passed in 1954) , the research credit (adopted in 1981), the social housing credit (adopted in 1986), the credit for the production of renewable energies (adopted in 1992), the employment tax credit (adopted in 1996 in replacing an earlier version enacted in 1978), the new markets tax credit (enacted in 2000), the tax credit for carbon sequestration (adopted in 2008) and the deduction for intangible income of foreign origin ( adopted in 2017).

[2] OECD, Tax challenges arising from the digitalisation of the economy: rules of the global model against base erosion (second pillar)December 2021.

[3] For a US corporation with a foreign parent, the calculation of the effective tax rate from the model rules would cause the foreign country income inclusion rule to apply, which would also negate the US tax incentive.

[4] The Model Rules do not extend this disadvantageous treatment to refundable tax credits. However, none of the existing US business tax credits are refundable, unlike the business credits offered in some other countries.

[5] Companies falling within the scope of the OECD model rules are those whose total turnover is equal to or greater than 750 million euros.

C: Deputy Secretary Batchelder

Deputy Assistant Secretary Grinberg

Assistant Undersecretary Murillo

Rebecca Kysar

Kevin Nichols

President Neal

Member of the Brady Ranking

President Wyden

Crapo Member Ranking

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