As part of a major overhaul of the global tax system, US President Joe Biden wants the world’s 100 largest companies – those with revenues of at least $ 20 billion – to pay into the coffers of countries wherever they go. sell their products or services, according to proposals sent to more. over 130 governments involved in ongoing tax negotiations.
Washington’s speech aims to redirect years of tense negotiations that have focused on finding ways for countries to raise taxes on big tech companies, including Google and Facebook. U.S. officials have pushed back on those plans and want any root and branch redesign to include both digital and non-digital businesses after the U.S. claimed the current plans unfairly target their local businesses.
The US proposals – confirmed by three officials with first-hand knowledge of the matter – were sent Wednesday to other countries involved in ongoing tax negotiations overseen by the Organization for Economic Co-operation and Development, a Paris-based group made up of from mostly wealthy countries trying to hammer out a global deal by the end of June.
Officials spoke on condition of anonymity as they were not authorized to speak publicly about the OECD negotiations. The Financial Times earlier reported the US tax proposals.
Washington’s speech is bold, but will likely lead to controversy. He’s trying to rewrite the handbook on a possible global deal on taxing the digital world after U.S. officials called on all international companies – not just Google and Facebook – to be subject to the New Global Deal.
“The United States cannot accept any discriminatory result against American companies,” said the Biden administration in its proposals, according to a presentation of the proposal obtained by POLITICO.
As part of the proposal, the Biden administration wants all international companies with global annual sales of around $ 20 billion to pay some form of corporate tax wherever they sell their products or services, said. the responsibles. That would limit the new levy to around 100 of the world’s largest companies, including Google and Facebook, but also non-digital giants such as German automaker Volkswagen.
The US proposal would target the global profits of these companies, dividing an yet to be determined amount of tax revenue between countries, depending on where the companies sell their products. Washington also expects countries like France and the UK to remove existing taxes on digital services that only affect US businesses, once a global deal is reached.
This approach would replace existing OECD proposals to target the digital activities of multinational companies and consumer-contact businesses around the world. The complexity of delineating digital businesses, including online advertising, has drawn criticism from corporate giants who should be paying taxes.
It would also replace the current global corporate tax regime only in the countries where they report their profits.
“The United States proposes to drop the distinction between [automated digital services] and [consumer-facing businesses] and focus on the top 100 [multinational enterprises], to make the system more manageable ”, the director of direct taxation of the European Commission, Benjamin Angel, tweeted Thursday. “Careful consideration of their proposal is now required. The coming months will be crucial. “
Officials said the US approach would likely pay off as much as the digitally-focused proposals currently on the OECD table, estimated at around $ 100 billion.
“Bottom line: the full scope is the simplest and most based on the manageable options,” reads the US presentation.
Worse and worse?
Not everyone welcomed Washington’s speech.
The US proposals still do not solve the problem of corporate tax rules that allow many companies to circumvent their obligations, according to Tove Maria Ryding, policy and advocacy manager for the European Network on Debt and Development, a civil society group campaigning. for a fairer global financial system.
“It is really absurd to put in place a new global tax system that only applies to the top 100 companies,” Ryding said. “What we needed was a fundamental reform of the broken OECD transfer pricing system – not an additional system on top of the old one.
“The corporate tax system was very complex and inefficient to begin with – now there is a real risk that goes from bad to worse,” she added.
The OECD is working on two initiatives, called pillar 1 and pillar 2, in the context of the global negotiations that last for several years. The first focuses on the taxation of multinational companies, depending on where they sell their goods and services. The second aims to introduce an overall minimum corporate tax rate with the aim of hampering tax havens.
Earlier this week, U.S. Treasury Secretary Janet Yellen weighed in on Pillar 2, which is similar to the 10.5% U.S. minimum tax on low-tax intangible income for U.S. businesses in the world – known as GILTI.
Yellen goes further, urging other countries to embrace Biden’s proposal to double the GILTI tax to 21% as the global minimum tax. The US administration is hoping the doubling of the threshold will help the White House pay for a $ 2 trillion infrastructure plan at home, while preventing the US from being compromised on the world stage.
Yet this speech was greeted with skepticism on how to get the rest of the world to agree to a minimum tax of this magnitude, especially as Pillar 2 negotiations through the OECD focused on securing ” a minimum global corporate tax threshold of around 12.5%. This is the current corporate tax rate in Ireland, a popular jurisdiction for multinationals due to Dublin’s low tax regime.