US Treasury Secretary Janet Yellen said on Monday that the United States is working with the other G20 nations on a global minimum tax for companies with a view to reaching an agreement that would move the world away from what she called a 30-year race to the bottom.
“Together, we can use global minimum tax to make sure that the global economy thrives, based on a more level playing field in the taxation of multinational corporations and spurs innovation, growth and prosperity,” Yellen said.
The proposal comes as President Joe Biden pushes his infrastructure investment plan that includes raising the corporate tax rate in the United States from 21 percent to 28 percent, and setting minimum taxes on US companies’ earnings overseas at 21 percent, twice the current level. The purpose of the move is to increase the federal government’s revenue so as to enable it to pay for the 2-trillion dollar infrastructure renovation plan.
More than 140 countries, including the US, began negotiating on a global minimum corporate tax under the OECD framework in 2019, with the aim of checking the erosion of the tax base. But the talks have been suspended due to the novel coronavirus outbreak. Negotiations are also underway under the OECD framework to collect a cross-border digital tax.
That Yellen took the initiative to raise the proposal again, covering the G20 nations first, indicates the US is intent on re-establishing its leading position in the global economy.
If the global minimum corporate tax agreement is reached, it will become more difficult for the multinational companies to calculate on a country-by-country basis to maximize their profits by choosing to report tax in the tax heavens. The US government has lost considerable tax revenues because of this practice.
The Biden administration wants to hike corporate taxes to raise infrastructure funds, but doing so may spur companies to leave the US. Therefore, he wants to unify the global minimum corporate tax rate to prevent the outflow.
In other words, what drives Yellen to take the initiative to press ahead with the proposal is still the interests of the US. But whether an agreement can be reached remains uncertain.
In the first place, tax collection is part of a country’s sovereignty. To change the tax rate can trigger systemic changes in a country’s economy, industry and society. Many countries will naturally reject a unified global minimum corporate tax. Even within the European Union, it has been difficult to reach such an agreement, since there are big gaps in the corporate tax rates of its members.
Some EU countries have already started levying a digital tax on US corporations, such as Google, Amazon, Apple and Facebook, which incurred sanctions from the US government. So if the US says no to EU’s digital tax, it is almost predictable that the EU will veto Yellen’s proposal.