OECD Deal Success Hinges on Implementation, Rep. Estes Says

Republicans on Capitol Hill are keenly watching how other countries implement a long-sought OECD agreement that exempts US companies from parts of the global minimum tax framework.

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Rep. Ron Estes (R-Kan.), a member of the tax-writing House Ways and Means Committee, hasn’t ruled out resurrecting legislation imposing retaliatory taxes on firms from nations that slow-walk codifying the deal.

The deal was reached earlier this month after the Trump administration demanded a carve-out for American companies and for the US tax system to work alongside the global minimum tax framework without interference.

Estes sat down with Bloomberg Tax Congress reporter Zach C. Cohen in his Capitol Hill office to talk about the importance of the agreement to American businesses and how he will “trust, but verify” other countries’ tax code changes, especially if they pursue the same kind of exemption Washington just secured.

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This transcript was produced by Bloomberg Law Automation.

Host (David Schultz): From Washington, I’m David Schultz, and this is Talking Tax.

Last week, we told you that the international community had agreed to a deal to exempt U.S. companies from two key provisions of the global minimum tax. Today we’re on Capitol Hill talking with someone who should be pretty happy about that. It’s Congressman Ron Estes, a Kansas Republican and member of the House Ways and Means Committee. He spoke with Bloomberg tax reporter Zach Cohen about why he trusts the international community but wants to verify what it’s doing and whether the deal that it reached is all that he could hope for.

Ron Estes:

You know, this is really an important agreement that was set in place last week. And it’s really been years, three plus years in the making as part of the discussion of how do we fix this problem that was created in terms of the agreement that Secretary Yellen and her folks negotiated with OECD? Because it’s so important for us to look at how do we maintain U.S. tax sovereignty? How do we protect American businesses and American workers? And how do we make sure that basically we’re not discriminating against U.S. businesses? And I really like what they accomplished. Treasury put to work from day one, literally, under Secretary Bessent, in terms of addressing this. And I don’t like the agreement that they’ve gotten to and being able to at least make sure that there’s not that discriminatory practices that were built into the OECD agreement.

Zach Cohen:

So the agreement does have some language that could prevent what Congress could do in the future in terms of rolling back tax policy that you all disagree with, things like the corporate alternative minimum tax. Do you have any concerns that this could actually end up tying Congress’s hands in some ways?

Ron Estes:

No, I think what we’ve seen is as they created the side-by-side agreement that matches up with the OECD plan, I mean, the whole intention was, is how do you make sure that not just in the U.S., but in countries around the world, that their tax systems didn’t unfairly treat U.S. businesses? And so, yes, there’s going to be some nuances as you move forward. But the thing that what I see in the agreement, it’s so important for making sure that we continue to maintain the responsibility for our tax code and the issues that affect U.S.-based operations.

Zach Cohen:

One of the first responses I saw from you and other Republican lawmakers is concerned about implementation of this from other countries. I mean, how concerned are you that countries could slow walk putting this agreement into their own legislative language?

Ron Estes:

I think what we’ve seen from what was being done with OECD and the plan, different countries were kind of further along in implementing, passing some of the legislation within their own countries and looking through that. So obviously, in those particular instances, a country is going to figure out how do they address that and make sure that this new agreement’s incorporated in that. So it’s going to be important that we continue to monitor that. That’s going to be a big part of going forward, is monitoring what goes on with other countries. If there’s statutory changes that they should be making, that that happens, I use the term trust but verify, which, you know, it’s an old standby from President Reagan, and making sure that the agreement’s followed and that we move forward. And it works good for all countries around the world.

Zach Cohen:

How long do you go ahead with trusting before you need some verification, before you really do need something locked in, before you all consider taking some actions over here to try to pressure some of these OECD member nations to put this into their statutes?

Ron Estes:

You know, I think a lot of it, you kind of look at it a little bit by case-by-case basis in terms of country-by-country and the issues there. Obviously, different countries are going to have different time schedules for their legislative process and what they do. In some of the conversations I’ve had with the European Commission and others, I mean, they feel that they’re in a good scenario now that they can address this and make sure that it works. We’re going to continue to monitor that and move forward. And, you know, at the end of the day, if there are problems that arise, Congress still has the opportunity to go out and implement legislation. And we, you know, that’s not something that we have given up in terms of that. I know Section 899 that was in the first reconciliation bill was an indicator that we wanted to make sure that Congress had the authority for controlling U.S. tax code. We can bring that back if it’s needed be, but I look forward to actually implementing this side-by-side agreement and moving forward in the next few years.

Zach Cohen:

Section 899 being, if I understand correctly, sort of a retaliatory tax on foreign multinationals that operate here in the U.S. if their countries impose taxes that are viewed as discriminatory on the U.S.

Ron Estes:

Well, in reality, I mean, what we wanted to accomplish with Section 899 was it was built up from a couple of pieces of standalone legislation that one that I introduced and one that Chairman Jason Smith introduced. And it was really intended that, you know, if foreign-based companies were going to have a tax advantage because of their home country tax code, that we should actually make sure that we didn’t discriminate against U.S. companies. I know sometimes people call that retaliatory, but in reality, what we were looking at is we want to protect U.S.-based businesses so that they’re not discriminated against. We also wanted to protect the U.S. tax revenue because that would have been a big loss for us as well and make sure that we continue to have opportunity to have jobs in America for American workers.

Zach Cohen:

During consideration of the reconciliation law, there was some concern from senators and other parties that Section 899 could end up disincentivizing foreign investment in the U.S. If you have to reintroduce that legislation or introduce a new version of it, are you considering changes to it that might ameliorate some of those concerns?

Ron Estes:

You know, I think one of the big pushbacks when some of these non-U.S. companies were talking about the impact to them of the provisions that were in Section 899, that was the pitch that they were pushing that it would disincentivize. And that’s not our intention at all. We want to have businesses that locate in the United States and have jobs for American workers. And so the whole intention is how do we make sure that the tax treatment is fair, whether U.S.-based businesses or foreign-based business, and that it encourage people to have more operations in the United States and hire more American workers.

Zach Cohen:

Is there an opening to maybe exempt, you know, foreign investment funds and sort of focus on companies if you end up making some changes to it?

Ron Estes:

Well, I don’t know that we really haven’t talked about specific changes that we would make to that. Frankly, I think the provisions, the way we had it written up in the version that we passed out of the House was pretty good in terms of addressing the problem that we were looking at. And basically, the problem goes back to the way the OECD agreement had been structured, the plan had been structured by OECD to include things like the undertaxed profit rule that basically was going after U.S.-based businesses.

Zach Cohen:

Do you think other countries might seek a similar side-by-side agreement by changing their own tax code? And would you be okay with that, especially if it was a potential adversary like China, for instance?

Ron Estes:

I think one of the things that we saw, and this was part of the negotiations as we’ve gone through over the last year in terms of how do you create this side-by-side. And part of it looking at the overall dynamics of because of the way the OECD plan was structured, the side-by-side addresses some of those inappropriate structures the way that was in the OECD plan. For example, it did not allow deductions of things that the U.S. has in the base code, like the GILTI minimum tax that already existed. And it didn’t recognize that as a provision that that was a minimum tax charged to businesses around the world. It didn’t recognize that our research and development deduction, because it was not treated as a refundable research and development, whereas other countries were getting credit for the exact same research and development deduction, but because they were refundable, they were getting credit. So it was more, how do we make sure that the provisions are similar? There’s always going to be some differences in the tax code from one country to another. And some of that, we just want to make sure that there’s not discriminatory practices in that.

Zach Cohen:

So I guess I do wonder about the precedent this might set in terms of future side-by-sides for other countries to the global minimum framework that countries did agree to during the Biden administration.

Ron Estes:

I think at that point in time, if it starts to get too complex and too convoluted in terms of different countries having different provisions that they want to address, then it’d probably be time to go back and reopen that whole OECD plan and say, you know, instead of applying patches to fix some of the problems that were inherent in the way it was structured, let’s come up with a new approach that will work for countries around the world.

Zach Cohen:

How concerned, if at all, are you about the sort of durability of this agreement? There’s certain provisions, I believe, that become alive right around the time we might have a change in administrations. We’ve got midterm elections coming up where control of the House and Senate are in play. If Republicans do lose control of the legislative process here in Washington, what does that mean for the future of this agreement and maintaining stability of it?

Ron Estes:

Yeah, there are some provisions set into this side-by-side agreement to actually do some reviews in 2029 and making sure that, you know, that it’s working the way it wants to and was intended in moving forward. Although we’ve talked about it more from the Republican side, there’s actually Democrat support in recognition that the OECD plan wasn’t right. I mean, you know, when the Democrats were in the majority in the House and the Senate and President Biden was in the White House, they would not include that OECD plan in their Build Back Better plan because there wasn’t enough Democrat support to do that as well. So I think there’s a recognition across everybody in Congress that we don’t want to penalize U.S. businesses at the extent of helping foreign-based businesses. We want to make sure that we help American workers.

Zach Cohen:

There’s also this outstanding question around digital taxes. I know you had this letter to the Treasury Department about France specifically. This hits big tech companies especially hard, Google, Amazon, Meta, for instance. It seems clear the administration wants to rewrite parts of that deal. How would you like to see that play out?

Ron Estes:

Yeah, it’s, you know, the digital services taxes that started into the forefront, you know, eight or nine years ago was kind of the lead in for this OECD plan that ended up kind of getting off course. I mean, they didn’t solve the digital services taxes and instead they went into their pillar two process for the OECD plan. So I think it’s important that we get back to addressing the digital services taxes. Obviously, some countries like Canada have pulled theirs back because they recognize that that wasn’t appropriate to go forward the way they were doing. France’s proposal is pretty problematic. Countries are still looking at digital services taxes as a way to be punitive to American businesses and instead of, you know, addressing a level playing field between businesses whether you were a U.S. versus a home country based in some other country. So I do think it’s important that we get back to now let’s go back and look at the digital services taxes and come up with an approach that works, that makes sense.

Zach Cohen:

Separate from international tax, I should ask you about the other business on Capitol Hill. How are you feeling about the prospects for future tax legislation this year, either on a bipartisan basis or if there’s another budget reconciliation process?

Ron Estes:

You know, I’d like to see some more. I mean, obviously, there’s issues out there that we’d like to address. But we really did so much in the working family tax cuts, you know, the big beautiful bill that we talk about. It made so many provisions permanent. So there’s a lot of major things that have already accomplished or in place and people are going to see it in their paychecks throughout this year and well as when they do the tax refund. But there are other provisions that we can talk about. I think, you know, in an ideal world, some of those provisions are bipartisan, that we could have support for that. Problem is this is an election year. So you end up that becomes a little bit more complicated when you go through the calculation of how do you come to an agreement on some different provisions. There’s a discussion now of do we do a reconciliation 2.0 and address some of those issues. There’s a lot of things out there that aren’t just tax related as well that we could incorporate in a second reconciliation bill and actually utilize to address some of the tax issues as well as some of those other issues as well.

Zach Cohen:

I know you’re not an appropriator, but you all are voting this week on legislation that would fund the IRS, the Treasury Department. Are you going to be supporting that bill? And what would funding the IRS mean for being able to implement a lot of the changes that you all got last year and making sure people get those refunds on time?

Ron Estes:

You know, I think there’s a there’s a lot of issues out there. Obviously, the appropriation folks have been working very hard. I mean, we want to make sure that we have funding for the federal government. I mean, that’s one of the important parts of our job. So we’ll have a have a couple or minibus with a couple different of the sections in it to pass on the floor this week. So it is important to make sure that we do fund the IRS, just like all of our government operations that we make sure we address that. We need to make sure we do it at the right level, too. And you know, one of the things that, you know, over time has been and particularly when the when the Democrats had the majority, there was a lot of excess funding that was put in there. It was sold as it was going to improve the technology in the IRS, but that really wasn’t what happened. In some cases, some misuse in terms of using the IRS as a weapon to go out and attack people politically. And so we want to we want to make sure that, you know, as we do fund it for appropriate, that we have the best voluntary tax code in the in the world, as far as I know. And we want to make sure that that happens, that people still have trust in that process.

Host

That was Kansas Republican Ron Estes talking with Bloomberg tax reporter Zach Cohen. And that’s it for today’s podcast. You can find up to the minute news on latest tax and accounting developments at our website, News.BloombergTax.com. That website, once again, is News.BloombergTax.com.

Today’s episode was produced by myself, David Schultz, and our editor was Kim Dixon. From Washington, I’m David Schultz. Thanks for listening.