Yellen positive on tax talks with Poland, but says more work needed

WARSAW, May 16 — There was no breakthrough in talks with Poland over the European Union’s plans to implement a 15 per cent global corporate minimum tax, US Treasury Secretary Janet Yellen said today, although she described the talks as “good” and “frank.”

Poland is the lone holdout in the EU’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.

“We’ve had very good discussions, good, frank discussions, in all of the meetings, and we’ll continue to work on all of the issues,” Yellen told reporters during a visit to Warsaw.

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 US technology giants such as Google owner Alphabet Inc, Facebook owner Meta Platforms Inc, Amazon.com Inc and Apple Inc.

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 scepticism over those arguments amid legal disputes between Poland and the EU.

Extra revenue

Yellen met Polish Prime Minister Mateusz Morawiecki as well as Rzeczkowska and central bank governor Adam Glapinski.

In a statement issued by the US 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 US”

The EU Tax Observatory has estimated that the tax would bring Poland €2 billion (RM9.1 billion) in annual revenue, which could help defray the high costs of hosting Ukrainian refugees fleeing the Russian invasion.

Yellen told reporters there were questions about how to analyse what the likely impact of Pillar 2 would be on Poland’s revenues.

“They seem to have a pessimistic view that we want to work through,” she said. “And they have some thoughts about how to link adoption of Pillar 2 to future progress on Pillar 1 that we need to nail down and see if it’s practical.”

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 reducing 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.”

US uncertainty

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

The US Congress needs to approve changes to the current 10.5 per cent US global overseas minimum tax known as “GILTI,” raising the rate to 15 per cent and converting it to a country-by-country system.

The changes were initially included in US 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 midterm congressional elections approach and as lawmakers voice concerns about more spending amid high inflation.

But Corwin said lack of US 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 US 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 US multinationals under the system would flow to foreign jurisdictions rather than to the US Treasury. — Reuters