The Biden government wants to open a financial yard for international relationsWorld minimum tax In corporate profit. The plan, launched by Treasury Secretary Janet Yellen, aims to raise corporate taxes in the US from 21 percent to 28 percent. The Trump administration reduced it from 35 percent to 21 percent. In addition, profits made by American companies abroad will be taxed at a minimum of 21%.
But the assumption of a world minimum tax is causing controversy outside national borders. In short, states must agree to impose a tax of not less than a certain percentage. This is not the first time this has been discussed. The European Union has been trying to unite on its own for years Business profit margins, To contain the erosion of the tax base. States with the lowest tax burden on businesses such as Ireland and the Netherlands are clearly opposed. They fear losing the ability to attract capital (and tax revenue) that is accurately derived from lower taxes.
How the Minimum Business Tax Works
How does the worldwide minimum tax work? A State adhering to the Agreement shall withdraw from the Company a portion of the profits not less than the prescribed rate. Even if the national tax legislation allows the company to pay less. In this way, many of the existing loopholes to convert to so-called profit will be lost. “Tax systems”. A very popular technique is to transfer a large portion of the revenue generated in the heavy tax state to a parent company based on the small tax state.
For example, transferring revenue to an Irish-based parent company operating in Italy would avoid paying a 24% rate, where the rate would be only 12.5%.
By taking advantage of the loose machine of Irish legislation to transfer profits to certain tax bases, tax evasion can be largely avoided. This is no longer possible as there is a minimum tax around the world. If the international community agrees to tax corporate profits of not less than 15 per cent, the multinationals will have to pay at least this rate. Perhaps not surprisingly, the OECD recently discussed the theory of a low rate of 12.5%, which is in line with Dublin’s charge.
It sounds like a great idea, but it’s not. First, it would be technically complicated to implement. Is the tax paid where the company operates or where the tax office is located? In the first case, all national legislation should be reviewed, which is a very easy process. In the second, encouragementTax exemption It will not fail in favor of countries with lower tax rates. Making a profit in Ireland would be equally profitable for a company than it is in Italy. With the world’s minimum tax, Dublin would pay a little more than it currently demands, but less than the Italian government expects.
Incompetent states will succeed
But the problem goes deeper. There are those who tax their income badly because they have low public spending, yet quality services are guaranteed to citizens. I am a Efficiency model To imitate. Holland is one of them. Is it right if they are forced to adopt a global minimum tax higher than their tax level in favor of less efficient states? If so yet Tax competition At the international level, it has prompted governments to try to reduce waste by limiting spending and collecting taxes, and from now on will be the exact opposite. Governments will no longer be encouraged to manage state finances prudently by unleashing their incompetence in the most prosperous states.
Who sets the lowest tax in the world? An intergovernmental agreement or any other body? What will the parliaments do there? Historically, they were born to limit the tax powers of the sovereign. By transferring their own powers to international treaties, they would be emptied more importantly. We’re sure these deals are for everyone, or we’re endangering the classics Boomerang? Even if the whole West agrees to pay a fixed world tax on corporate profits, a portion of this planet will be available to multinational companies that seek refuge to reduce the tax burden.
This is the same story Tobin taxIt’s always a failure to move finance trades with a click of the mouse into tax – free markets. We will end by favoring Asia, where there is practically no compatibility with these types of theories. The West will be further encouraged to relocate finance offices to unknown islands in the Pacific and beyond. The ambush will turn into an attack targeting the frugal states in favor of the world’s minimum taxpayers.