Biden, European on the verge of Pact to Tax Multinational Firms, Together with Massive Tech Together with

June 4, 2021, 1:06 pm

On the eve of his first overseas trip as U.S. President, Joe Biden is pushing for a dramatic overhaul of international corporate tax policy that could resolve a stalemate between the United States and Europe on taxing America’s big tech sector and make it significantly more difficult for all large multinational corporations Corporations to take advantage of tax havens.

At their meeting in London on Friday, G-7 Treasury Ministers are expected to support a proposal by Biden and US Treasury Secretary Janet Yellen for a minimum global corporate tax of at least 15 percent, part of a move that major governments hope they will Bringing in corporate taxes will not be paid anywhere in the world. The discussion is led by the Organization for Economic Cooperation and Development (OECD), which is responsible for drawing up tax guidelines in the richest countries in the world. This week, the new OECD Secretary General Mathias Cormann called Biden’s plan a “game changer” and said he was “quietly optimistic” about reaching an international deal on the taxation of multinational corporations.

Biden also calls on the G-7 and G-20 countries to agree to an additional proposal that the world’s largest and most profitable companies should pay taxes in every country they sell goods or services to. The new approach would turn centuries-old guidelines on their head that now require companies to be physically present in countries where they are taxed.

While the proposal would apply to other multinational corporations from many other countries as well, it is in part an attempt to resolve a decades-long dispute between the United States, the European Union, and other countries around the world over how to deal with big tech companies, most of them them are headquartered in the United States.

Both the Obama and Trump administrations 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 the profits of goods and services sold in their territory if the company is not headquartered there. Under the Biden administration, the United States moved from being # 1 in corporate tax reform to being the champion of such transformation – including new taxes on the tech titans of Silicon Valley.

It’s far from over as Ireland and other tax havens oppose Biden’s proposal, but US officials say they are awaiting approval from the G-7, as well as major G-20 nations like Japan, India, Argentina and southern Africa . On Wednesday, the Biden administration imposed and immediately suspended retaliatory tariffs of 25 percent on six countries – Austria, the United Kingdom, India, Italy, Spain and Turkey – that have imposed a tax on digital services that Washington says it is US -Companies discriminated against. The move has been interpreted as a warning to go along with Biden’s proposal.

“It’s a bargaining trick,” says Michael Greenberger, an international finance expert at the University of Maryland. “Essentially, they are telling these countries that this is not a free choice for you. There is a risk of significant pain and we will 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. Then, if the G-20 finance ministers meet in July – and ultimately the heads of state and government at the G-20 summit in October – reach an agreement, the changes could lead to a virtual revolution in international corporate tax policy.

And at a time when multilateral trade negotiations have stalled, the upcoming pact could also open the door to new trade deals, some experts say.

“This agreement could be the starting point for the resurgence of multilateralism in international trade,” said Eduardo Baistrocchi, professor of tax law at the London School of Economics. “The next stage could be a new wave of free trade agreements.”

A senior Biden government official told Foreign Policy that the “two pillars” of the negotiations amount to a compromise. The government will demand an agreement on a pillar – a minimum global corporate tax of 15 percent – in exchange for the ability to tax U.S. digital giants and other multinational corporations that often find tax havens where they pay just a few percentage points.

“We have never had as much momentum as we do now,” said the official. Such changes would also have to be approved by Congress, but government officials believe some Republicans might be on board, and the filibuster rule that has blocked so many laws could well be overturned when the proposal comes to a vote, perhaps next year .

For Biden, the new corporate tax plan is an integral part of his broader goal of moving the US and global economies away from corporate exploitation and back to work. Biden’s “Made in America” ​​tax plan aims to remove incentives for offshore investment and reverse a trend where the United States, while US corporations are the most profitable in the world, collects less than nearly corporate income as a share of GDP every advanced economy in the OECD.

However, the lack of corporate tax revenues affects all advanced economies. For more than a decade since the Great Recession, low-income large countries have sought ways to raise tax revenue for multinational corporations headquartered in tax havens like Ireland, Switzerland, Luxembourg and Caribbean areas like the Cayman Islands. The so-called race to the bottom between countries has lowered corporate tax rates significantly over the past two decades. The average statutory enterprise quota in the OECD countries was 32.2 percent in 2000; According to the OECD, by 2020 it was 23.2 percent.

“Our goal is to end the global race to the bottom on corporate taxation,” said the administrative officer. “Every country is worse off from tax competition, especially its workers. … When people say they think the system is rigged, and considering why we have such extreme inequality, taxes play a big role. ”The official pointed out that corporate revenue is the proportion of US GDP decreased from an average of 2 percent in 2000 to 1 percent in 2018 and 2019. “That is a third of the OECD average,” said the official. “And we have to fix it.”

Even before Biden took over the presidency, the Internet had slowly closed to tax evasion by individuals. In recent years, the OECD, in collaboration with more than 100 countries around the world, has adopted new international standards for the automatic exchange of information for tax purposes, which restrict the use of tax havens and generate more than $ 100 billion in additional tax revenue for OECD countries have, according to the information provided by the organization.

And in 2019 the OECD suggested a new formulation for the way in which taxation rights are distributed across legal systems in order to cope with the tax challenges posed by the digitization of the economy. Her proposal would allow states to treat some multinational corporations as single, consolidated entities and tax them on a portion of their global profits based where “real” economic activities take place. The targeted profits are referred to as “residual profit” or excessive profit of more than 10 to 20 percent margin. Biden’s proposal builds on these ideas.

Baistrocchi said Biden’s plan, if put into effect, would be the “first systemic attempt” to redistribute profits and revenues from tax havens and multinationals since the 1930s.