If there is ever an international agreement on the heavier taxation of multinationals, the week after Easter 2021 may prove to have been historic for this. The United States – under Donald Trump still the thug in this area – under Joe Biden this week is sending two important messages. On Monday, Finance Minister Janet Yellen advocated a global minimum profit tax rate. And on Wednesday, the US made proposals for taxing large companies, such as tech giants, in countries where they make their sales.
A worldwide minimum rate and the hiring of multinationals – these are exactly the two ‘pillars’ of the consultations on taxation of the OECD, the think tank of rich countries. That consultation was deadlocked under Trump. Now that Biden wants to join in, hopes are growing internationally for a deal that tackles tax avoidance and forces companies like Facebook and Amazon to pay more tax.
What exactly do the Americans want and how does this relate to those two ‘pillars’ in the OECD consultation?
Pillar 1: minimum rate
First of all, the minimum rate for profit tax (corporate tax). Yellen advocated a Chicago think tank for an “end to the thirty-year race to the bottom” in the profit tax paid by companies. On average, the income tax rate in rich countries fell from 38 to 22 percent between 1990 and 2018, according to data from the International Monetary Fund (IMF). In practice, this is often much less. Biden said last week that 91 Fortune 500companies, including Amazon, pay “not a single penny” of federal income tax. He and Yellen are now advocating an international minimum rate of 21 percent.
The Biden administration wants to increase domestic corporate tax, which Trump lowered from 35 to 21 percent, back to 28 percent. This is to finance the gigantic US government expenditure – $ 1,900 billion in corona support (1,594 billion euros) and 2,300 billion for infrastructure and greening (1,929 billion euros). To prevent American companies from moving to tax havens, they must pay at least 21 percent tax on their foreign profits. Those who pay less elsewhere will still be taxed in the US to 21 percent (now 10.5 percent). The minimum rate of 21 percent should become internationally binding.
The OECD has also proposed an international minimum rate. This has been lower so far: 12.5 percent. Countries would be entitled to extra tax ‘at home’ companies that pay less than this percentage abroad, as the US also wants to do. Not only the 37 member states, but also 102 other countries, including China and India, are participating in the OECD tax consultation in Paris.
The significantly higher minimum tariff of 21 percent proposed by the US poses a threat to countries that compete with low tariffs. Those are known offshoreports such as the Cayman Islands and Barbados, but also EU countries such as Ireland (12.5 percent) and Hungary (9 percent). The Dutch rate is 25 percent.
Incidentally, it is not so much the official rates that are important for corporate tax, but mainly the effective rates. Quite a few countries attract companies with exceptions, deductions and other sweeteners. The OECD wants to pay more attention to effective tax rates.
Also read: The Netherlands again high on the list as ‘tax haven’
Pillar 2: tax across the border
More news came from the US on Wednesday. In a letter to the participants of the OECD consultation, from which the Financial Times quotes, the Americans presented a plan to make the largest corporations pay taxes in markets where they operate, not just their countries of origin.
The global debate about this is fueled by the discontent, especially in Europe, about the earnings model of ‘Big Tech’. Apple, Amazon, Facebook and Google use (free) data from Europeans and make a lot of profit, but that is deposited with regional head offices, often located in a country with low profit tax (Apple and Google are in Ireland). That is why more and more countries want to tax digital services of foreign companies themselves. To put pressure on the OECD consultation, several European countries have already individually introduced a ‘digital tax’ on digital services, including France, the United Kingdom and Spain.
The Biden government recently threatened these countries with reprisals, but is now making a major concession. The US is open to taxation of the largest global companies in the markets where they make their money. It is unclear whether it only concerns digital services. Large European companies, such as German automakers or the French luxury conglomerate LVMH – are making big profits in the US and China.
Within the OECD, one of the most difficult discussions is whether tech companies should be treated differently from ‘traditional’ companies. Some countries, such as France, believe that these companies have a radically different business model. Other countries, such as the Netherlands, point out that the entire economy is digitizing and that a new tax regime must apply to all companies.
Biden supports global tax on multinationals
Source link Biden supports global tax on multinationals