The US is proposing a new plan in corporate tax talks
The Biden administration has proposed a new model for taxing multinational corporations, which will require the world’s largest businesses to pay taxes based on sales in each country based on sales in each country as part of a global minimum tax agreement.
In documents sent to 135 countries negotiating international taxation in Paris in the OECD and documents obtained by the Financial Times on Wednesday, the U.S. Treasury established a plan that would apply to global profits of very large companies, including large U.S. technology groups, regardless of their physical presence.
The aim of the plan is to encourage negotiations in the OECD, the international organization of rich countries, with the promise of a more stable international tax system that would stop the proliferation of national digital taxes and break the pattern of tax avoidance and profit shifting. at the hands of many multinationals.
IMF and World Bank meetings call for US White House to concede spring concession week U.S. corporate taxes about $ 2.5 million over the next 15 years to pay for more than $ 2 million in infrastructure, clean energy and manufacturing investments.
After almost a decade, the OECD tax negotiations have split into two parts. The first pillar is designed to implement a new regime for taxing the largest multinationals, while the second pillar is designed to address the global minimum tax rate that the U.S. wants to see at 21 percent.
Under the OECD agreement, the Joe Biden administration would allow U.S. companies to raise corporate taxes without fear of lowering them in other countries because it would introduce a highly applied global minimum tax rate.
Outline of the US proposal
The U.S. proposal was designed by the team of Treasury Secretary Janet Yellen to meet the basic obstacles to the current international corporate tax system, but without designing a new system from scratch.
The U.S. is most interested in achieving a minimum effective corporate tax rate, which would allow it to raise money from its largest and most profitable companies without fear of shifting profits or moving elsewhere.
Tax havens like Ireland and low tax rate countries will take away all the benefits from securing the business because of the lower tax rate than the basic business reasons. If low rates continue to apply, companies in the U.S. and other countries would be able to charge tax payments at the general minimum level.
The proposals will give all countries a new right to tax an element of global profits generated by the world’s largest multinationals based on their country’s sales quotas. This seeks to ensure that nations can calm their populations, that the world’s largest companies cannot operate without paying taxes in their countries.
The share of global profits that will be distributed around the world is relatively small, so this element will fail with campaigns that wanted to change the entire tax system on international corporations around the world, with all revenues distributed.
Washington has threatened to impose tariffs on countries such as France, the United Kingdom, Italy and Spain, among other things, on digital taxes to be paid to U.S. tech companies on charges of unfairly discriminating against U.S. companies.
By approving the U.S. plan, other countries could increase the revenues of large U.S. technology groups and other multinationals that operated under their jurisdiction but paid little corporate tax.
The proposals received strong support on Thursday morning from Italian Prime Minister Mario Draghi, and this year he is also leading the G20. In support of U.S. proposals to unblock negotiations, Draghi said he was “completely behind [the US] to demand a general corporation tax ”.
As one of the countries that has introduced digital tax, Italy will be an important supporter of the US proposals to reach a broader consensus.
Spanish Deputy Economy Minister Nadia Calviño told Bloomberg television that she was very pleased to be “back” to the Washington negotiating table, and hoped for an agreement in the summer. But he added details about the “very important” proposal yet to be examined.
Washington’s bid reflects Biden’s broader goal of ending what officials have described as a race on global taxes that has deprived governments of the revenue they need to fund basic services and investments.
Negotiations on international taxation have been going on in the OECD for many years, as the US has opposed other US multinationals, particularly because of attempts to discriminate against large US technology companies.
The Trump administration has stressed in a “safe harbor” provision that it will allow voluntary compliance by U.S. technology teams. Shortly after taking office this year, Biden canceled that request, but this week’s proposal offers a new solution.
The U.S. Treasury now offers another formula that only the largest and most profitable companies in the world would be subject to the new rules, regardless of their sector, in terms of revenue and profit margins. These would likely include about 100 companies, including large US technology groups and other very large multinationals.
The proposals have already been shared with the OECD, which is calling for negotiations, and is trying to unite the countries to create a global deal in the summer.
Pascal Saint-Amans, head of the OECD tax administration, welcomed the US proposal. “This has restarted the negotiations and it is very positive,” he said. “It’s a serious proposition that has the potential to succeed in both [international negotiations] and the U.S. Congress. Peace is more important than anything else and that would stabilize it [international corporate tax] in the post – coronavirus system “.
Saint-Amans added that the proposal is likely to win as much as the OECD’s suggestion for other countries, allowing the U.S. to raise the money they wanted from the largest companies.
Many international tax campaigns have said that OECD proposals were not far enough or that they are giving emerging economies sufficient tax collection capacity. The US proposals do not change this feature significantly, although the US documents are ready for the US to be flexible with some details.
An agreement would help resolve the transatlantic trade dispute instead of a broader agreement between the U.S. and multiple countries that have imposed taxes on digital services.
Additional report by Daniel Dombey