PARIS, June 16 (Reuters) – One of the two pillars of a global corporate tax overhaul due to come into force next year is at risk of collapsing as plans over how to share taxing rights on the 100 biggest, most profitable multinationals fall victim to domestic U.S. politics.

Nearly 140 countries are supposed to start implementing from next year a 2021 deal rewriting outdated rules of international taxation to deter multinational companies like Alphabet’s Google (GOOGL.O) or Amazon (AMZN.O) from booking profits in low-tax countries.

The deal, aimed in particular at mainly U.S.-based digital giants, is built on a first pillar that aims to reallocate taxing rights on about $200 billion in profits from the companies to the countries where they do business.

The second pillar aims to end a decades-long race to the bottom on tax rates. It tries to ensure companies with revenue greater than 750 million euros ($820 million) pay a global minimum rate of 15% by allowing governments to apply a top-up tax on revenues earned in countries with lower rates.

“Pillar I has a much rockier path forward. Indeed it is quite likely that it will ultimately fail,” said tax lawyer Peter Barnes, who heads industry forum the International Fiscal Association.

Countries had originally hoped to have a high-level signing ceremony in July for a new multilateral treaty – needed to redistribute taxing rights. But officials now say the hope is simply to have a viable text ready by then as ironing out some countries’ concerns proves tricky.

Even if the details are hammered out by July and G20 leaders sign off on the treaty at a summit in September, some officials said Republican opposition and a lack of Democratic enthusiasm spells trouble for its ratification in the U.S. Congress.

“Pillar 1 will not be implemented by the United States. It will not pass Congress,” said one official close to the discussions at the Paris-based Organisation for Economic Cooperation and Development.

DIGITAL SERVICE TAX

While the global minimum tax was always expected to bring in far more revenue, the collapse of plans to redistribute taxing rights would not come without consequences.

The Biden administration backed the deal in 2021 in part because it requires other countries to abandon existing or planned digital services taxes targeting big U.S. tech groups.

France, which the Trump administration hit with tariff action over its digital services tax before the Biden administration suspended it, has said that it will keep the tax in place as long as Pillar I of the deal is not resolved.

If Washington does not ratify the treaty, some of the more than 30 countries that have digital taxes or are thinking about imposing them are likely to go ahead, another official involved in the discussions at the OECD said.

Against that background, U.S. companies are eager to see progress on a multilateral solution that would get rid of unilateral digital services taxes.

“The proliferation of digital services taxes continues to fragment the global tax system, severely impacting all industries that do business around the world,” said Megan Funkhouser, senior director the Information Technology Industry Council, which represents many U.S. tech firms.

The spread of digital services taxes could be a red flag for Republicans in Congress, who introduced a bill last month for a reciprocal levy on countries that target U.S. companies with “unfair taxes” under the global minimum tax.

U.S. Treasury Secretary Janet Yellen told CNBC last week that the bill had little chance of passing and that the United States would get on board with the global minimum.

“I think that over time as other countries adopt this minimum tax, and put in place penalties designed to encourage countries that are not part of it to adopt it, that the United States and members of Congress will see that it is sensible and appropriate for us to put it in place as well,” she said.

Barnes said big changes to the U.S tax code were unlikely before 2025 – after next year’s presidential election and when Trump-era tax cuts expire – but that U.S. multinationals would need to put pressure on Congress to get the United States in sync with global rules.

“We face a crazy situation with enormous compliance burdens and tax revenues going to other countries. For me that’s the issue to watch,” he said.

($1 = 0.9142 euros)

Reporting by Leigh Thomas; Additional reporting by Christian Kraemer in Berlin and David Lawder in Washington; Editing by Catherine Evans

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