What is the overall minimum tax proposed by Biden and how it works

O que é e como funcionaria o imposto mínimo global proposto por Biden

The government of U.S. President Joe Biden recently proposed an international agreement to adopt a global minimum tax for corporations, with the goal of preventing multinational corporations from transferring their profits and jobs to countries that offer lower taxes.

U.S. Treasury Secretary Janet Yellen said earlier this month that she had reached an agreement with the G20 countries to impose a minimum corporate tax, which would help end a race that has been at the bottom of tax rates for 30 years.

The project could raise $ 2 trillion, and “flow out of the country,” Yellen said in an article. Wall Street Journal.

Part of it is the proposal to establish a global minimum rate for business Tax change plan for US companies, Introduced in early April and called “Made in America”. Organizations from rich countries such as the G20 and the Organization for Economic Cooperation and Development (OECD) have already taken the initiative to adopt the international minimum tax.

The plan comes with a $ 2 trillion infrastructure program proposed by the White House, which will raise corporate taxes in the US from 21% to 28%, partially reversing the tax cuts promoted by the Donald Trump government (reducing corporate taxes from 35 percent to the current 21 percent).

Biden talked about a 21% global minimum tax for companies. “This means that companies cannot hide their earnings in tax havens in places like the Cayman Islands and Bermuda,” Democrats said in a speech on April 7. “We are going to eliminate the deductions used by companies to source ource jobs and transfer assets abroad. They transfer jobs abroad, transfer assets overseas, and there is no tax on everything they earn.”

How does it work?

Countries that adopt this system can set their own corporate tax rates. But a national company that is part of its operations in a foreign country with low taxes Your local government will have to pay the difference between the tax you pay in that country and the global minimum rate.

“While there are strong incentives for countries to work together to fight tax competition, large economies will not be able to stop competition unless they impose a minimum tax on foreign income,” the plan presented by the government said.

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What is the minimum fee?

The OECD has previously said that governments generally agree with the idea of ​​a minimum global tax, but the question of what that rate will be is still unanimous.

The Biden government plans to raise the corporate tax rate in the U.S. to 28 percent and raise the global minimum rate to 21 percent. In previous discussions at the OECD, the minimum rate was 12.5%.

What’s the matter?

The plan aims to end what Treasury Secretary Janet Yellen calls a “race” for countries that offer the lowest rates.

Over the past few decades, governments in various parts of the world, including Ireland, Switzerland, the Cayman Islands, the Netherlands and Hong Kong, have implemented tax policies to attract investment from multinational corporations. Many multinational companies have shifted their operations, including the domain of their own property, to places where they make very little or no tax on their profits.

Giants such as Google, Apple, Amazon, Facebook, and Nike use affiliate companies’ networks to divert profits from large corporations to this lower tax threshold.

Richard Murphy, co-founder of the Tax Justice Network, estimates that approximately 60% of the profits of these American companies seeking tax havens are currently registered in these locations. Financial Times. Economists also report that 20% of tax charges in the United States have shifted from corporations to individuals since 1945, describing the trend as “unsustainable.”

U.S. Treasury loses $ 49 billion a year due to tax misuse by multinational corporations Tax Justice Network Report. Germany and France are among the worst hit countries in terms of absolute numbers.

However, Daniel Bunn, vice president of the Tax Foundation Foundation in Washington, warns that the global minimum tax does not guarantee the end of competition between countries to attract international capital. “People are talking about ending tax competition, but competition for taxes or something, competition between countries for mobile capital and labor resources will continue,” Bunn said. Voice of America. “If you put monetary policy off the table, you could end up in a system of countries offering direct subsidies to business investments.”

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What was the reaction in the United States?

The Biden administration’s proposal is a major change in the US position so far on the sovereignty of countries to impose taxes.

Washington’s initiative is expected to accelerate negotiations at the OECD and sign a multifaceted agreement early June. For the agreement to take effect in the United States, it must be approved by both houses and by a majority of Democrats in the U.S. Congress.

Democrat Ron Wyden, chairman of the U.S. Senate Finance Committee, said Financial Times Biden’s proposal should be the basis of the global agreement. “I have long had two goals for the OECD process: to end the discriminatory taxation of digital services and to implement a global tax system that treats U.S. companies fairly. The new Treasury proposal has the potential to achieve both of these goals.” Wyden said. This proposal will ensure that our multinational corporations are encouraged to invest in the United States and pay their fair share, ”he said.

Director Biden, who is also a Democrat on the Forms and Means Committee, supports the plan.

However, the opposition has already shown signs that the bilateral agreement on the issue will not be easy. The House of Representatives expressed skepticism in a letter to Yellen about the White House initiative, which asked for more information about the plan with the OECD, the Financial Times reported.

“We are concerned that the OECD changes will directly reduce U.S. tax revenues and pave the way for further attacks by other countries on U.S. companies and our domestic tax base,” the lawmaker said, adding that the global minimum rate would be 21%, making American workers and companies more competitive than other countries.

Groups representing US business interests are also dissatisfied with the plan, especially the possibility of raising taxes internally under the Biden administration, Voice of America.

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Joshua Bolton, president of the Business Roundtable, said members of the organization support the government’s intention to ensure that the international tax system creates a higher level field for US companies operating globally. However he acknowledged that their numbers were not enough to defeat America’s commitment to protect the United States. Low tax. Global.

Critics of the plan argue that the United States cannot guarantee that countries with a history of undemocratic rule (such as Russia) and human rights abuses (such as China) will comply with the law, and therefore treat American businesses and workers fairly. As Alex Hendry, the American director for tax reform, points out in an article Hill.

What was the international response?

If the US government succeeds in this proposal, many countries, including European countries, will lose billions of dollars in revenue in addition to the job losses caused by the closure of the companies’ headquarters in these countries.

For example, Ireland has been very successful in attracting investment from US and technology companies such as Google, Facebook, Microsoft and Airbnb, suggesting that they make only 12.5 per cent of the profits they make in the country. If Biden’s proposal is accepted, this achievement will be in jeopardy.

In an interview with the Irish network RTE, Irish Finance Minister Pascal Donahue said he did not believe the United States was specifically targeting his country. “I ‘ve been saying for years that this moment is coming. It’s happening now, and it’s going to have consequences. It’s going to have a significant impact on how we impose corporate taxes in Ireland and on tax collection,” he said.

Germany and France, which charge up to 30% in fees, have complained that Ireland is unfair to other EU countries. Both countries and other Europeans support Washington’s plan, as did the European Commission, which argued that a global minimum rate should be set after negotiations at the OECD.

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