Home » Articles » Commerce and Economics » Global Corporate Tax Plan Finds Support in G7 but Also Faces Hurdles

Global Corporate Tax Plan Finds Support in G7 but Also Faces Hurdles

Published on 3 June 2021 at 13:44


While President Joe Biden largely ran his election campaign on promises of a return to the “normality” that existed prior to President Trump’s victory in 2016, one of the more transformative ideas to emerge from his administration has been that of a global minimum corporate tax.

 

This plan has been conceived in response to large multinational corporations pursuing increasingly effective tactics to avoid paying taxes in the countries in which they do business.

 

Recent decades have seen multinational corporations, particularly tech giants such as Facebook, Google and Apple, shift their profits away from the countries in which they perform most of their activity towards tax havens globally.

 

In Europe, countries such as Ireland and Luxembourg have used their low corporate tax rate to attract foreign investment, while others, such as the Cayman Islands, have an effective tax rate of zero. Experts estimate that $427bn (or over €341bn) in tax revenue is lost each year due to the existence of tax havens.

 

Under its current form, the Biden Administration’s plan would see multinational corporations pay tax to national governments “based on the sales they generate in each country, irrespective of where they are based” according to the Guardian.

 

Biden has proposed a global minimum tax rate of 21% and, closer to home, has proposed that the US corporate tax rate be increased to 28%, in a partial reversal of the Trump tax cut of 2017.

 

The proposal has garnered the support of key actors including France and Germany, but Ireland has balked at the prospect of its low corporate tax rate of 12.5% being consigned to history.

 

Finance Minister and President of the Eurogroup Paschal Donohoe expressed “significant reservations” over Biden’s plan in its current state. This promises to be a significant hurdle to the principle of a global corporate tax in general, as Ireland has fought fiercely to preserve its 12.5% corporate tax rate.

 

Key evidence of this can be seen in Ireland’s appeal against the European Court of Justice’s decision to award the country €13bn in unpaid taxes from tech giant Apple.

 

In addition, and perhaps unsurprisingly, the idea of a global corporate tax rate has not been well-received by the world’s wealthy elites. The editorial board of the Wall Street Journal has expressed concern at the proposal, arguing that the US would lose its competitive advantage should a global corporate tax turn into reality and that the proposal is little more than an attempt to deflect the attention of American voters away from domestic issues.

 

Nevertheless, Biden’s proposal has been gaining momentum in recent weeks, and the G7 meeting next week is expected to endorse a global minimum corporate tax rate of 15%, lower than Biden’s proposal but still higher than rates in Ireland and tax havens globally.

 

It remains to be seen what the final results of next week’s G7 summit will be, and how resistance from low tax jurisdictions like Ireland and tax havens such as Bermuda will be addressed.

 

Nevertheless, American and European lawmakers alike will be optimistic that the power of multinational corporations can be curtailed, and that governments will be able to recover tens of billions of Dollars and Euros in revenue to fund vital social programmes and infrastructure projects.

 


«   »

Add comment

Comments

There are no comments yet.