Taxing Times: The USA Proposes a New Global Corporate Tax​

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By Curtley Bale​


The Story

This week, President Biden presented plans to the OECD (Organisation for Economic Co-operation and Development) for a new global corporate tax. His proposal involves a unanimous minimum tax rate across the 135 countries involved, as well as a tax based on sales in each jurisdiction.

The OECD has been spearheading these talks for decades but has often met resistance from various administrations, including Biden’s predecessor, President Trump. If the measures are successful, it will prevent large multinational corporations paying very little in corporation tax despite making billions of dollars.

What It Means For Businesses And Law Firms

Biden’s proposals are known as ‘pillars’ (US Treasury).

Pillar One sets out a new tax regime for the world’s largest multinational corporations operating in several jurisdictions. The regime will allow tax to be collected based on sales in each jurisdiction, as opposed to the company being taxed in a low-tax region (also called a ‘tax haven’), where it has moved its profits to benefit from the low tax rate. One example of this would be Google, which uses its Irish headquarters to take advantage of Ireland’s low tax rate of 12.5%. Google then pays less tax than it would in other countries, such as the US, France, or the UK.

Pillar Two of the plan is a new global tax rate minimum, which will attempt to eliminate tax havens and prevent companies from taking advantage of certain low-tax regions. Biden has given a soft estimate of 21% for the global tax rate minimum, a figure roughly in line with the US and the UK but lower than countries such as France (28%).

The plan would allow countries to tax companies that operate within their jurisdictions, even without a physical location. This will be especially attractive to these countries who are seeking to take a stronger stance on “Big Tech” companies (e.g. Google, Amazon, Facebook, and Apple). Countries such as France, Germany, and the EU bloc, have been trying to levy more taxes on the Big Tech companies who often pay little tax in these jurisdictions despite having a large presence in the market. Already, France has backed a digital tax on the likes of Amazon and Google, with other EU countries also backing the measure. Under the new plans, Biden wants to end the use of these individual digital tax rates in favour of a more uniform mechanism (Reuters).

It has been estimated that these proposals will impact the world’s largest 100 multinational corporations, including the notoriously-hard-to-tax tech companies (Financial Times). Biden’s concession deviates from Trump’s plan because it allows other countries to benefit from the success of US companies. This concession has led to widespread backing in Europe with the finance ministers or treasury departments of the UK, Germany, France, and the Netherlands agreeing in principle with these measures to take a tougher stance on multinational companies.