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Global Tax Revamp Gathers Pace as Europe Salutes U.S. Plan

Bloomberg logoBloomberg 5/21/2021 William Horobin and Michael Rapoport

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A U.S. proposal for a global minimum corporate tax of at least 15% met with an enthusiastic reception in Europe, bringing the world closer to a deal on sweeping changes to how much multinationals pay, and to which governments.

“This is really a big progress,” German Finance Minister Olaf Scholz said as he arrived for a meeting with European counterparts in Lisbon, minutes after his French counterpart had also offered a positive reaction. “We will really have the chance that in this summer this deal and agreement that we were working for so long can happen.”

chart: Global Tax © Bloomberg Global Tax

The latest pitch in the race for an accord between 139 countries is less than the 21% rate the U.S. previously suggested for overseas earnings of its businesses, a level some nations found excessive. Before Joe Biden’s arrival at the White House, negotiations at the Organization for Economic Cooperation and Development focused on a 12.5% minimum.

“I would assume they’ve had behind-the-scenes talks with key countries before putting this on the table, and that they believe that there is a reasonable prospect of getting agreement on a 15% rate,” said Lafayette “Chip” Harter, a senior policy advisor at PricewaterhouseCoopers in Washington who formerly represented the U.S. at OECD negotiations.

While obstacles remain, including a separate disagreement over the treatment of digital giants such as Facebook Inc. and Alphabet Inc.’s Google, the impetus from the Biden administration has transformed OECD negotiations that had been bogged down for years in ever-growing layers of technical complexity, transatlantic bickering and trade tensions.

The nearing of an accord raises the prospect of significantly heftier bills for the biggest global corporations. Last year, the OECD estimated the global minimum tax, in addition to the U.S.’s own rules, would bolster revenues for governments by as much as $100 billion a year – a figure that would balloon with a higher rate.

The latest U.S. proposal on a 15% rate is only half of the story, because the issue of a minimum level is one of two so-called pillars in the OECD negotiations. European countries have welcomed a separate Biden initiative on the thornier issue of where companies face levies, but talks on that are still ongoing.

The U.S. suggested a simpler, narrower scope, carving up tax revenues of just the 100 or so biggest multinationals. Officials in other countries are uncertain whether that will cover all the digital giants they want to target, and there are particular concerns that Amazon.com Inc may not get caught in the net.

According to research by Morgan Stanley, the U.S. proposal on the first pillar could also make significant changes to effective tax rates, particularly for manufacturers of technology hardware and pharmaceutical companies.

“The key question is not the figure, even if we can live with 15% -- it can be a good compromise between the expectations of all members of the OECD,” French Finance Minister Bruno Le Maire said as he arrived at the Lisbon meeting. “The key question is to define a global framework for digital taxation and minimum taxation.”

The new U.S. offer could could also still face opposition from countries including Ireland, which has used low business levies as a key economic development strategy.

Tax Take

Some reactions to U.S. proposal on 15% minimum rate
“I deem quite possible to reach, not yet there, but quite possible to reach an agreement in principle at the G-20 level working very hard in the next weeks.” -- Paolo Gentiloni, European Union Economy Commissioner“We welcome the proposals from the U.S. authorities and I hope this will enable us to have an agreement in the OECD in the course of the summer.” -- Nadia Calvino, Spanish finance minister“The discussions are open. As long as it is a common agreed level for all of us, then obviously that makes life easier for everybody.” -- Pierre Gramegna, Luxembourg finance minister“I welcome the U.S. Treasury’s proposal to introduce a global minimum tax rate of at least 15%. This is yet another key step towards a deal.” -- Italian Finance Minister Daniele FrancoAustria’s finance minister can envision a global minimum tax between 15% and 20% and believes this is a reasonable range, according to a spokesperson

In a speech on Friday, Irish Finance Minister Paschal Donohoe said he will work constructively toward a deal. But he added that Ireland still has reservations regarding the impact on investment, and because proposals under discussion could strip its treasury of 20% of current corporate tax revenues.

The minister also noted Ireland’s potential to disrupt a deal as the global agreement would need to be underpinned by European Union directives requiring unanimity.

“I believe that small countries, and Ireland is one of them, need to be able to use tax policy as a legitimate lever,” Donohoe said. “At the same time, I fully accept that there needs to be clear boundaries to ensure any competition is fair and sustainable.”

Race to the Bottom

Japanese Finance Minister Taro Aso, speaking to reporters in Tokyo, said the U.S. proposal represents progress, although more talks are needed. He said he expects movement toward global agreements, including on a digital tax, at the G-20’s summer meeting, but final deals may not happen until later in the year.

Yellen has argued for an ambitious effort to end a global “race to the bottom” on company taxes. Such competition has eroded the revenues of governments that have run up record debt levels amid the Covid-19 crisis. Her approach marked a turnaround from the Trump administration, and has energized the talks among about 140 nations on the issue.

“It is imperative to work multilaterally to end the pressures of corporate tax competition and corporate tax base erosion,” the Treasury Department said in a statement on Thursday. “Treasury underscored that 15% is a floor and that discussions should continue to be ambitious and push that rate higher.”

Thursday’s proposal comes before a June 4-5 meeting of Group of Seven finance chiefs in London that offer a forum for key industrial nations to forge a consensus.

The Biden administration is also hoping to secure a broad OECD deal on a global minimum rate before Democrats take up the push in Congress to increase U.S. corporate taxes. The White House has proposed a 28% domestic corporate rate, up from 21%, to help pay for the president’s $4 trillion in longer-term economic programs.

Read More...
Global Tax Proposal May Hit Tech Hardware, Morgan Stanley SaysEU Eyes New Tax Framework Going Beyond Current Global Plans Global Corporate Taxes Face ‘Revolution’ After U.S. Shift

(Updates with Ireland’s finance minister in 12th paragraph)

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