In a major overhaul of the global tax system, U.S. President Joe Biden wants the world’s 100 largest companies (those with revenues of at least $ 20 billion) to pay the coffers of the countries where they sell their goods or services, according to proposals sent to more than 130 governments involved in ongoing tax talks.
Washington’s goal is to redirect years of intense negotiations that have focused on finding ways for countries to raise taxes on high-tech companies, including Google and Facebook. U.S. officials have rejected these plans and want any global review to include digital and non-digital companies after the United States claimed that current plans are unfairly aimed at its own companies.
The US proposals, confirmed by three officials with direct knowledge of the issue, were sent on Wednesday to other countries involved in ongoing tax talks overseen by the Organization for Economic Co-operation and Development, a Paris-based group of mostly rich countries trying to beat will conclude a global deal in late June.
Officials spoke on condition of anonymity because they were not allowed to speak publicly about OECD negotiations. The Financial Times previously reported on U.S. tax proposals.
Washington’s playing field is bold, but it will likely generate controversy. It is trying to rewrite the playbook on a possible global agreement on digital world taxation after U.S. officials called on all international companies – and not just Google and Facebook – to be subject to the new global pact.
“The United States cannot accept any result that is discriminatory towards American companies,” the Biden administration exposed in its proposals, according to a presentation of the proposal obtained by POLITICO.
Under the proposal, the Biden administration wants all international companies with annual global revenues of about $ 20 billion to pay some form of corporation tax wherever they sell their goods or services, officials said. This would limit the new rate to approximately the world’s 100 largest companies, including Google and Facebook companies, but also to non-digital giants like German carmaker Volkswagen.
The U.S. proposal would address the overall profits of these companies, dividing an amount yet to be determined from tax collections between countries, depending on where the companies sell their assets. Washington also hopes that countries like France and the United Kingdom will eliminate existing taxes on digital services that are exclusively focused on U.S. companies, once a global agreement has been reached.
This approach would replace existing OECD proposals to target the digital activities of multinational companies and consumer-oriented businesses around the world. The complexity of digital fencing activities, including online advertising, has attracted criticism from corporate giants who should pay taxes.
It would also replace the existing global regime of taxing companies only in the countries where they record their profits.
“The United States is proposing to eliminate the distinction between [automated digital services] i [consumer-facing businesses] and focus on the top 100 [multinational enterprises], to make the system more manageable, “said European Commission Director of Direct Taxation Benjamin Angel. he tweeted Thursday. “Now we need a careful examination of his proposal. The coming months will be crucial. “
Officials said the US approach would likely contribute as much as the digital-focused proposals currently on the OECD table, estimated at about $ 100 billion.
“Summary: Full scope is the simplest and most fundamental of the manageable options,” the U.S. presentation said.
From worst to worst?
Not everyone welcomed the Washington launch.
US proposals still do not solve the problem of having corporate tax rules that allow many companies to evade their obligations, according to Tove Maria Ryding, the policy and defense manager of the European Debt and Development Network, a group of civil society campaigning. for a more equitable global financial system.
“It’s really absurd to establish a new global tax system that only applies to the top 100 companies,” Ryding said. “What we needed was a fundamental overhaul of the broken OECD transfer pricing system, not an additional system to the old one.
“The corporate tax system was very complex and ineffective to begin with; now there is a real risk that it will go from bad to worse,” he added.
The OECD has been working on two initiatives, known as Pillar 1 and Pillar 2, as part of global negotiations over the years. The first focuses on taxing multinational companies, depending on where they sell their goods and services. The second aims to introduce a global minimum corporate tax rate to try to eliminate tax havens.
Earlier this week, U.S. Treasury Secretary Janet Yellen left her weight behind Pillar 2, which is similar to the U.S. 10.5% minimum tax on the global intangible income of the United States. American companies, known as GILTI.
Yellen goes further and urges other countries to adopt Biden’s proposal to double the GILTI tax to 21% as a minimum global tax. The U.S. administration hopes doubling the threshold will help the White House pay for a $ 2 trillion home infrastructure plan, while preventing the U.S. from being reduced to the global stage.
However, this argument has been received with skepticism about how to get the rest of the world to agree to a minimum tax of this magnitude, especially because Pillar 2 negotiations through the OECD have focused to achieve a minimum corporate tax threshold of around 12.5 percent. This is the current corporate tax rate in Ireland, a popular jurisdiction for multinationals due to Dublin’s low tax regime.