In a major overhaul of the global tax system, US President Joe Biden wants the world’s top 100 companies – those with revenues of at least $ 20 billion – to pay in the homes of countries wherever they sell their goods or services, according to proposals sent to more than 130 governments involved in ongoing tax talks.
The Washington presentation aims to redirect years of full negotiations, which focused on finding ways for countries to raise taxes for Big Tech companies, including Google and Facebook. US officials have backed down against these plans and want any overhaul to include both digital companies and digital companies, after the US claimed that the current plans unfairly target 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 group in Paris with largely wealthy countries. tries to hit conclude a global agreement by the end of June.
Officials spoke on condition of anonymity because they were not allowed to speak publicly about the OECD negotiations. The Financial Times earlier reported US tax proposals.
Washington’s tone is bold, but it will probably lead to controversy. He is trying to rewrite the playbook on a potential global agreement on the taxation of the digital world after US officials called on all international companies – not just Google and Facebook – to be subject to the new global pact.
“The United States cannot accept any result that is discriminatory against American companies,” the Biden administration said 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 profit tax wherever they sell their goods or services, officials said. This would limit the new tax to about the world’s top 100 companies, including Google and Facebook, as well as non-digital giants such as German carmaker Volkswagen.
The US proposal would target the overall profits of these companies, sharing an amount of tax revenue that is not yet established between countries, depending on where companies sell their goods. Washington also expects countries such as France and the United Kingdom to eliminate existing taxes on digital services that focus exclusively on US companies once a global agreement is agreed.
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 ringfencing activities, including online advertising, has drawn criticism from corporate giants who should pay any fees.
It would also replace the existing global corporate tax regime only in the countries where it registers its profits.
“The United States is proposing to abandon the distinction between [automated digital services] and [consumer-facing businesses] and focus on the top 100 [multinational enterprises], to make the system easier to manage “, the Director of the European Commission for Direct Taxation, Benjamin Angel, posted on Twitter Thursday. “A careful examination of their proposal is needed. The months to come will be crucial. ”
Officials said the US approach is likely to bring in as much as the digital-focused proposals currently being put forward by the OECD, estimated at about $ 100 billion.
“The bottom line: the scope is the simplest and most basic of the manageable options,” reads the US presentation.
Bad for bad?
Not everyone welcomed Washington’s land.
The 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, policy and advocacy manager for the European Debt and Development Network, a campaigning civil society group. for a fairer global financial system.
“It’s really absurd to set up a new global tax system that only applies to the top 100 corporations,” Ryding said. “We needed a fundamental reform of the faulty OECD transfer pricing system – not an additional system in addition to the old one.
“First of all, the corporate tax system has been extremely complex and inefficient – now there is a real risk that it will go from bad to worse,” she added.
The OECD has been working on two initiatives, known as Pillar 1 and Pillar 2, as part of the global negotiations for 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 remove tax havens.
Earlier this week, US Treasury Secretary Janet Yellen threw her weight behind Pillar 2, which is similar to the US 10.5% minimum tax on the intangible global revenues of US companies – known as GILTI .
Yellen is making further efforts, urging other countries to adopt Biden’s proposal to double the GILTI tax to 21% as a global minimum tax. The US administration hopes that doubling the threshold will help the White House pay for a $ 2 trillion home infrastructure plan, while preventing the US from being affected on the global stage.
However, this step was received with skepticism about how to get the rest of the world to agree to a minimum tax of this magnitude, especially since the OECD Pillar 2 negotiations focused on ensuring a minimum threshold of global corporate taxes of about 12.5 percent. This is the current corporate tax rate in Ireland, a popular jurisdiction for multinationals due to the Dublin reduced tax regime.