Tax Rate Horse-Trading Continues
Kitty Miv, Editor
26 May, 2021
As might be expected as governments look to rebuild their COVID-buffeted economies, and to replenish their tax coffers, anti-avoidance measures are becoming the order of the day, chief among which is the proposed global minimum corporate tax rate put forward by the Biden administration.
The proposal was first discussed seriously earlier this year alongside domestic plans to increase the general and minimum tax rates (to 28 percent and 21 percent respectively), and the US authorities appear keen to press ahead in order to prevent the United States from falling out of step with the rest of the world in this regard, at a cost to its international competitiveness.
In a statement released on May 20, commenting on the progress made so far in international tax reform talks, the US Treasury announced that: "Over the last two days, leaders from the Office of Tax Policy at the US Department of the Treasury participated in meetings with the Steering Group of the Inclusive Framework on base erosion and profit shifting (BEPS) as part of the Organization for Economic Cooperation and Development (OECD)/G20 international tax negotiations. As part of those meetings, discussions on the global corporate minimum tax rate began in earnest."
It went on to argue that "...with the global corporate minimum tax functionally set at zero today, there has been a race to the bottom on corporate taxes, undermining the United States' and other countries' ability to raise the revenue needed to make critical investments. Treasury made clear that a global corporate minimum tax rate would ensure the global economy thrives based on a more level playing field in the taxation of multinational corporations, and would spur innovation, growth, and prosperity while improving fairness for middle class and working people."
The US authorities appear to have accepted, for the time being, a "floor" for the minimum tax rate of 15 percent, although they are keen to see a higher rate discussed if possible.
However, internationally, it seems that 15 percent is being seen by many countries as an acceptable compromise, a viewpoint expressed this week by the Italian Government, which currently holds the rotating presidency of the G20.
Speaking with regard to the technical discussions at the OECD, Italy's Minister of Economy and Finance, Daniele Franco announced that: "I welcome the US Treasury proposal of a global minimum tax rate of at least 15 percent. This is another important step towards an agreement on the new international tax architecture."
As might be expected, however, Ireland - traditionally a strong defender of its own 12.5 percent corporate tax rate, is somewhat less than enthused by the US proposals, although it has nevertheless pledged to engage constructively with the talks.
Speaking on May 21 at the American Chamber of Commerce Ireland's Global Conference, Finance Minister Paschal Donohoe explained that Ireland has "indicated an openness to proposals on a reallocation of a certain proportion of profits to the jurisdiction of consumers, which could address the specific tax challenges of digitalization." However, he added that he has "had reservations about a high minimum effective tax rate on the basis that it could be a step toward global tax harmonization rather than addressing aggressive tax planning."
Donohoe argued that any international agreement must give "sufficient regard to those countries that consciously decide to follow a substance-based industrial policy centered on being small but open for investment."
Until next week!
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