June 4, 2021, 13:06
On the eve of his first overseas trip as US president, Joe Biden is pushing for a radical overhaul of international corporate tax policies that could resolve an impasse between the United States and Europe over taxation of the sector. American big tech and make it much more difficult for multinationals to exploit tax havens.
Meeting in London on Friday, G-7 finance ministers are expected to approve a proposal by Biden and US Treasury Secretary Janet Yellen for a minimum global corporate tax of at least 15%, as part of a measure that major governments hope to generate in corporate taxes. who are not paid worldwide. The Organization for Economic Co-operation and Development (OECD), which is responsible for drafting tax guidelines in the world’s richest countries, is leading the discussions. This week, new OECD Secretary-General Mathias Cormann called Biden’s plan a “game changer” and said he was “quietly optimistic” about reaching an international tax deal multinational companies.
Biden is also asking the G-7 and G-20 countries to approve an additional proposal requiring the world’s largest and most profitable companies to pay taxes in all countries to which they sell goods or services. The new approach would overturn century-old policies that now legally require companies to be physically present in the countries where they are taxed.
While the proposal would apply to other multinationals from many other countries as well, part of it is an attempt to resolve a decades-long dispute between the United States, the European Union and other countries. the world on how to deal with big tech companies, most of them headquartered in the United States.
The Obama and Trump administrations have both refused to consider a digital tax specifically targeted at companies like Google, Facebook, Amazon and Apple. And until now, countries have not been able to tax profits from goods and services sold under their jurisdiction if the company is not headquartered there. Under the Biden administration, the United States has gone from being the first obstacle to corporate tax reform to championing such transformation, including new taxes on the tech titans of Silicon Valley.
It’s far from a done deal, with Ireland and other tax havens resisting Biden’s proposal, but U.S. officials say they are fully awaiting approval from the G-7 as well as major countries in the G-20s such as Japan, India, Argentina and the South. Africa. On Wednesday, the Biden administration imposed, then immediately suspended, retaliatory tariffs of 25% on six countries – Austria, Britain, India, Italy, Spain and Turkey – which have imposed a tax on digital services which Washington says discriminates against American businesses. This move was interpreted as a warning to accept Biden’s proposal.
“It’s a bargaining ploy,” said Michael Greenberger, an international finance expert at the University of Maryland. “Basically what they’re saying to these countries is that it’s not a free vote for you. There is a significant threat of pain, and we’ll give you six months to think about it.
If approved by G-7 ministers, Biden is expected to sign the deal at his summit next week in Cornwall, England. If an agreement is then reached by G-20 finance ministers at their meeting in July and finally by leaders at the G-20 summit in October, the changes could constitute a virtual revolution in international corporate tax policies. .
And at a time when multilateral trade negotiations have stalled, the next pact could also open the door to new trade deals, some experts say.
“This agreement could be the starting point for the re-emergence of multilateralism in international trade,” said Eduardo Baistrocchi, professor of tax law at the London School of Economics. “The next step could be a new wave of free trade agreements.”
A senior official in the Biden administration said Foreign police that the “two pillars” of the negotiations constitute a compromise. The administration will demand an agreement on a pillar – a minimum global corporate tax of 15% – in exchange for the possibility of taxing US digital giants and other multinationals who often find tax havens where they are only charged a few percentage points.
“We have never had as much momentum as now,” said the official. Such changes are also expected to be approved by Congress, but administration officials believe some Republicans may be on board, and the obstruction rule that has blocked so many laws may well be eliminated by the time the proposal is submitted. to vote, maybe next year. .
For Biden, the new corporate tax plan is integral to his larger goal of reorienting the U.S. and global economy away from big business exploitation and back to work. Biden’s “Made in America” tax plan aims to remove incentives for offshore investment and reverse a trend that although US corporations are the most profitable in the world, the United States receives less tax revenue on the world. corporations as a percentage of GDP than any OECD advanced economy.
However, the problem of the corporate tax shortfall affects all advanced economies. For more than a decade since the Great Recession, major, revenue-strapped countries have sought ways to raise tax revenue for multinationals headquartered in tax havens such as Ireland, Switzerland, Luxembourg. and the Caribbean such as the Cayman Islands. The so-called race to the bottom between countries has dramatically reduced corporate tax rates over the past two decades. The average corporate statutory rate in OECD countries was 32.2% in 2000; by 2020, that figure had fallen to 23.2%, according to the OECD.
“Our goal is to end the global race to the bottom in terms of corporate taxation,” said the administration official. “Every country is made worse by tax competition, especially workers. … When people say they feel like the system is rigged, and when you wonder why we have such extreme inequality, taxation is a big part of the story. The official pointed out that corporate revenues as a percentage of US GDP have increased from an average of 2% in 2000 to 1% in 2018 and 2019. “That’s a third of the OECD average,” said the manager. “And we have to fix it.”
Even before Biden assumed the presidency, the web was slowly closing on personal tax evasion. In recent years, the OECD, in collaboration with more than 100 countries around the world, has adopted new international standards on the automatic exchange of information for tax purposes that have limited the use of tax havens and resulted in more $ 100 billion in additional tax revenue for OECD countries. , according to organization data.
And in 2019, the OECD offers a new wording of how tax rights are distributed among jurisdictions to meet the tax challenges arising from the digitization of the economy. His proposal would allow states to treat certain multinationals as single consolidated entities and tax them on a share of their global profits. based where “real” economic activity takes place. The targeted profits are called “residual” profits or excessive margins greater than 10 to 20%. Biden’s proposal builds on these ideas.
If passed, Baistrocchi said Biden’s plan would be the “first systemic attempt” to redistribute profits and revenues from tax havens and multinational corporations since the 1930s.