Minimum global tax on big firms could raise $245bn
Joe Biden: need to level up the world
Governments across the world could raise an additional $245 billion in revenue by introducing a minimum global corporate tax rate, it has been claimed.
US president Jeff Biden is calling for a worldwide agreement to stop giant companies taking advantage of lower taxes in different jurisdictions, thereby denying the world economy of billions in revenue.
US Treasury Secretary Janet Yellen is working with the G20 nations on a proposed 21% rate.
She said this week that the US administration wants to create a level playing field in the taxation of multinational businesses, particularly among tech firms. Amazon boss Jeff Bezos said he supports the proposal.
Alex Cobham, chief executive of the anti-evasion campaign group Tax Justice Network said some multinationals are paying between 0% and 5%, costing the global economy $245bn in lost revenue every year. Others estimate a 21% rate would raise $300bn.
He said the Biden move was “an important step forward” and “at least we have agreement” that multinationals should pay an effective tax rate.
“When Jeff Bezos says Amazon would be happy with a higher corporate tax rate I fear he means he is happy with that because we are not paying anything like the statutory rate anyway,” said Mr Cobham.
“What is interesting is that Amazon and all the others would have to pay that minimum statutory rate. It would really change the balance and the way Amazon and all the others compete with small domestic businesses who cannot take advantage of these profit shifting opportunities.
“It would be a shot in the arm for competition. We will see markets moving better because we have reined in the disproportionate power of some of these big corporations.”
France and Germany have signalled support for the US approach, which could pave the way for a landmark agreement on global tax changes this summer.
The German finance minister, Olaf Scholz, said: “I’m in high spirits that with this corporate taxation initiative, we’ll manage to put an end to the worldwide race to the bottom in taxation.”
His French counterpart, Bruno Le Maire, who had clashed with Washington over international taxation while Donald Trump was president, said he welcomed the change in the US position.
“A global agreement on international taxation is now within reach,” Le Maire said. “We must seize this historic opportunity.”
The tax proposal was discussed at virtual meetings held by the group of the group of 20 major industrial nations on Wednesday, which were attended by Rishi Sunak, the UK chancellor.
Countries are now working towards reaching an agreement on corporate tax reform through the Organisation for Economic Co-operation and Development (OECD) in time for a July summit of G20 finance ministers.
But the move has caused concern among smaller nations such as the Republic of Ireland which use lower taxes to compete with bigger nations in attracting investment. Ireland’s 12.5% rate is credited with encouraging firms such as Apple to create thousands of jobs.
The Irish finance minister, Paschal Donohoe, said: “The focus on a global minimum tax rate is a prospect that I do have reservations about … on what would be the impact of that on the competitiveness for smaller- and medium-sized economies that do have lower rates of corporate taxation and use that as part of their overall competitive model.”
It is understood the UK Treasury recognises the need for international agreement on a global minimum tax rate, although ministers want to make sure any solution is balanced and appropriately targeted.