U.S. Wins International Backing for Global Minimum Tax

U.S. Wins International Backing for Global Minimum Tax

July 1, 2021

ABI Bankruptcy Brief

U.S. Wins International Backing for Global Minimum Tax​​​​​​

The U.S. has won international backing for a global minimum rate of tax as part of a wider overhaul of the rules for taxing international companies, a major step toward securing a final agreement on a key element of the Biden administration’s domestic plans for revenue-raising and spending, the Wall Street Journal reported. Officials from 130 countries that met virtually agreed Thursday to the broad outlines of the overhaul, including all of the Group of 20 nations. It would be the most sweeping change in international taxation in a century. They include China and India, the large developing countries that had previously had reservations about the proposed overhaul. Those governments now will seek to pass laws ensuring that companies headquartered in their countries pay a minimum tax rate of at least 15% in each of the nations in which they operate, reducing opportunities for tax avoidance. The Organization for Economic Cooperation and Development, which is guiding the negotiations, estimates that governments lose revenues of between $100 billion and $240 billion to tax avoidance each year. “After years of intense work and negotiations, this historic package will ensure that large multinational companies pay their fair share of tax everywhere,” said OECD Secretary-General Mathias Cormann. U.S. Treasury Secretary Janet Yellen called it “a historic day for economic diplomacy.” The Biden administration’s international efforts are tied closely to its domestic tax agenda, which calls for raising the U.S. corporate tax rate to 28% from 21%, and raising the minimum tax on U.S.-based companies’ foreign profits to 21% from 10.5%. Some details of the overhaul remain to be settled, but 130 governments have also agreed to a new way of sharing out the rights to tax profits that will give more revenues to countries in which businesses have customers. That overturns a longstanding principle of international taxation, under which profits are taxed where value is generated, which traditionally was where businesses had a physical presence.​​

Analysis: Commercial Tenants’ Strategies for Avoiding or Delaying Rent Payments

The economic damage many businesses have suffered as a result of the COVID-19 pandemic has led to an increase in commercial tenants seeking to avoid or delay making rent payments, including extending beyond the 60-day period permitted under § 365(d)(3) of the Bankruptcy Code, according to a Reuters analysis. Additional time can prove critical for debtor-tenants, in particular for businesses such as movie theaters, restaurants or retail stores where rent comprises a large part of the post-petition expense and where they were forced to close by government mandate. Debtor-tenants have employed at least three strategies to avoid or delay paying rent, according to the commentary: (1) Abate rent based on lease provisions (e.g., force majeure clauses) and common law doctrines such as impossibility or frustration of purpose; (2) postpone rent through a “temporary procedures” order, during which no party — including landlords — is permitted to file motions seeking to lift the automatic stay (e.g., for non-payment of rent); and (3) defer paying rent until plan confirmation or later, via an “Interim Budget” order. Debtor-tenants have frequently sought the abatement of rent through lease provisions, such as force majeure provisions. In most of these cases, the outcome has turned on the interpretation of lease provisions, most often whether the force majeure clause excuses the duty to pay rent.​​​

Occupancy issues are at the heart of many significant retail cases, as detailed in the ABI publication Retail and Office Bankruptcy: Landlord/Tenant Rights, available in the ABI Store

Lower Rents? Check. Speakeasy? Check. How Office Landlords Are Enticing Tenants

Even as life returns to many New York City neighborhoods, the city’s big commercial districts are awash with empty office space, the New York Times reported. Most workers haven’t yet returned — and it’s unclear whether they all will. That uncertainty is terrifying the city’s biggest office landlords, and many of them are going to great lengths to retain and attract tenants. Lower rents or free months in multiyear leases are now de rigueur. But landlords are also trying to entice new and returning tenants with sweeping redesigns and new technology that can quickly refashion office space based on needs. They are dangling upscale new clubs and food halls available largely for tenants, hoping to draw back employees starved for workplace socializing while also pursuing new business opportunities. In one building on West 26th Street near the Hudson River, the owners — private-equity firm Blackstone and the building owner and developer RXR Realty — are showing off a 600-square-foot speakeasy tucked away in a corner of the ground floor. Steven Durels, the director of leasing and property at SL Green, one of the city’s biggest landlords, recently told Wall Street analysts that the concessions his company and its rivals were making were “brutal.” But corporate landlords don’t have much choice: Almost one-fifth of the total market for office space in Manhattan is available for rent — a record high, according to CBRE, a real estate services firm. The amount includes roughly 79 million square feet of both unrented space and offices that existing tenants are trying to sublet.​​​

Commentary*: After Deadly Blazes, PG&E’s Bankruptcy Promises Are Falling Flat

The nation’s largest utility has long vowed to change its reckless ways. After leaving a trail of death and destruction throughout Northern California from wildfires sparked by its equipment, Pacific Gas & Electric’s fifth CEO in less than three years is again pledging that the future will get “easier” and “brighter.” But those promises made by CEO Patricia “Patti” Poppe in her first letter to shareholders are ringing hollow a year after PG&E emerged from one of the most complex bankruptcy cases in U.S. history, an act of desperation driven by a succession of harrowing wildfires ignited by its long-neglected electrical grid, according to an Associated Press commentary. The bankruptcy, PG&E’s second in less than 20 years, was billed as an opportunity for a utility that provides power to 16 million people — a population greater than all but a handful of states — to finally hit the reset button. So far, however, it has looked more like a reminder of problems that have resulted in tragedy after tragedy the past six years, including a 2018 wildfire that killed 85 people and destroyed the town of Paradise, about 170 miles (274 kilometers) northeast of San Francisco. And most of the roughly 70,000 victims who have filed claims for devastation caused by PG&E’s past misdeeds are still awaiting payment from a $13.5 billion trust created during the bankruptcy. The trust is facing a nearly $2 billion shortfall because half its funding came in the form of company stock, despite critics saying it was foolhardy to hold a stake in a utility with such a shoddy record, according to the commentary. During its first six months of operation last year, the trust doled out just $7.2 million to victims while running up nearly $39 million in operating expenses that reduced the amount available to be paid out, according to its financial records.​​​

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Analysis: Following Stress Tests, Banks’ Next Act Gets Tougher

Investors should savor the dividends and buybacks coming from big U.S. banks right now; they might not get the same kind of boost next year, according to a Wall Street Journal analysis. Following last week’s Federal Reserve stress-test results, which banks passed with room to spare, banks on Monday evening unveiled a host of increased dividends and expanded share-repurchase plans. This is very good news for shareholders who stuck with bank stocks last year, betting on these capital returns when they were beaten up and restricted from big payouts. Banks still likely have more loan-loss reserve releases to come. That will certainly boost earnings, but it will have a somewhat more limited benefit on capital levels because banks were allowed by regulators to delay some of the negative effects of reserving on capital during the pandemic. (Subscription required.)​​​

U.S. Jobless Claims Fell to 364,000 Last Week, a New Pandemic Low

Worker filings for jobless benefits fell to a new pandemic low last week and resumed a monthslong downward trend, adding to signs of a recovering labor market, the Wall Street Journal reported. Initial jobless claims fell by 51,000 to a seasonally adjusted 364,000 in the week ended June 26 from the prior week’s revised total of 415,000, the Labor Department said Thursday. The drop brought the four-week moving average, which smooths out volatility in the weekly figures, to 392,750, also a pandemic low. Jobless claims, a proxy for layoffs, are down by about 50% since the first week of April but remain above pre-pandemic levels. Initial claims were at 256,000 on March 14, 2020, as COVID-19 took hold in the U.S. The 2019 average for claims was 218,000. Thursday’s decline in unemployment claims came ahead of the June U.S. employment report, set to be released by the Labor Department on Friday. Economists project that employers created 706,000 jobs last month and that the unemployment rate fell to 5.6%. Even with such gains, the labor market would still be around 6.6 million jobs smaller than just ahead of the pandemic. “There are still many things in the air for this economic recovery to be stable — vaccination rates, the evolution of new strains, the rest of the world’s economy,” said Alfredo Romero, an economist at North Carolina A&T State University. In addition, the recovery has been uneven. While hiring has picked up, it has lagged behind gross domestic product growth as workers remain sidelined because of expanded unemployment benefits, increased child-care responsibilities and other factors. Supply-chain disruptions also continue to hobble business. These factors have pushed up prices, raising inflation worries.​​​

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New on ABI’s Bankruptcy Blog Exchange: Office Loan Worries Loom Large for Second Half of 2021

As thousands of businesses — across almost all sectors — have successfully shifted to remote working arrangements, the cost savings are bound to motivate new views on the merits of office properties, including those in city centers that support surrounding retail businesses. As a result, lenders are likely to pull away from certain corners of commercial real estate, perhaps indefinitely, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

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