By: Rep. Ron Estes (KS-04)
Bloomberg Tax

Foreign countries have been seeking ways to pilfer our tax base under the guise of friendly global agreements for years, but their efforts have gone largely unnoticed by many outside Washington, D.C.—until now.

If countries such as France, Canada, the UK, and others are imposing extraterritorial or discriminatory tax regimes on the US, it seems only logical that our tax code should reflect this changing landscape—and, better yet, discourage these types of unfair taxes altogether.

The Senate Finance Committee and House Ways and Means Committee, the latter on which I serve, wrote to Treasury Secretary Janet Yellen in 2022 about the Organization for Economic Co-operation and Development’s (OECD) disastrous Pillar Two agreement, which would establish a 15% global minimum tax to cross-border profits of large multinational corporations.

Pillar Two would erode our tax base and give foreign countries the ability to target and tax US-owned companies. As an elected member of the House of Representatives, I sought to stand up for US innovators, taxpayers, workers, and our tax revenue.

In 2023, Ways and Means Chairman Jason Smith (R-Mo.) and I introduced two bills aimed at curbing Pillar Two’s so-called Under Taxed Profit Rule surtax. The premise of both pieces of legislation was simple—if a country moves forward with a UTPR surtax on US workers and businesses, reciprocal tax measures would be imposed that apply as long as the foreign country’s unfair tax remains in place.

My Unfair Tax Prevention Act and Chairman Smith’s Defending American Jobs and Investment Act provided the basis for Section 899—a section of the tax code Republicans included in our recent budget reconciliation bill.

Section 899 is a tax and a tool that will only be used if foreign countries willfully disregard US tax sovereignty in their efforts to inflate their treasuries. It would increase rates for individuals and companies from countries whose tax policies are declared to be discriminatory to the US. It’s a reasonable tax policy that should encourage our allies to act reasonably toward our country.

While some are calling Section 899 “obscure,” it wasn’t born out of thin air. Republicans have warned that the OECD’s Pillar Two would need to change—and countries should avoid adopting it—or the US would respond.

We were serious three years ago about opposing the OECD’s attempt to take over the US tax base, and we’re just as serious about it today.

Inaction on addressing policies like UTPR would be detrimental to US interests. A 2023 report from the Joint Committee on Taxation showed a $122 billion loss over 10 years to the US Treasury should the rest of the world adopt Pillar Two but the US does not.

Revenge would be going after even more than what’s been taken out of our revenues, and the Ways and Means Committee certainly considered harsher measures. Yet, according to the Congressional Budget Office, Section 899 reasonably would raise revenues by $116 billion over 10 years.

The way forward is not to panic, like what we’ve seen over the last week from special interests attempting to sway public opinion. It’s for foreign countries to repeal their discriminatory taxes on US companies immediately.

Anyone trying to stoke fear among US manufacturers and innovators should stop lobbying for the removal of Section 899 and start pushing foreign governments to abandon their reckless tax policies. With Section 899 in place, we can advocate for US companies and workers. Without it, we are allowing foreign countries to trample on our taxing jurisdiction and reduce our federal revenues.