A top official at the Organization for Economic Cooperation and Development (OECD), which is hosting talks on a global corporate tax being pushed by the Biden administration, said a 15 percent minimum rate would be a “very significant step forward” that still leaves countries with enough scope to compete to attract multinationals to their jurisdictions.
OECD Secretary-General Mathias Cormann made the remarks in an interview with Bloomberg on June 7, which followed a landmark agreement on the tax on June 5 among senior officials from the Group of Seven (G-7) countries, which includes the United States. The G-7 countries agreed to a minimum global corporate tax rate of at least 15 percent, which would apply to overseas profits.
“It’s important we strike the right balance,” Cormann told Bloomberg. “If we were able to achieve a circumstance where all multinational companies operating globally are required to pay at least 15 percent on their profits, I think that is a very significant step forward” that would still leave enough room for “appropriate competition.”
In May, the U.S. Treasury Department said it would push for a 15 percent global corporate tax rate as a “floor” from which “discussions should continue to be ambitious and push that rate higher.”
Treasury Secretary Janet Yellen first proposed a 21 percent global corporate minimum tax rate on U.S. multinationals in April as part of President Joe Biden’s $2.2 trillion infrastructure spending proposal, which would be financed largely by increasing the domestic U.S. corporate tax rate to 28 percent.
In calling for a 15 percent minimum tax on corporations, Treasury said in a statement 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.”
A May analysis by Bloomberg Economics showed that the median tax rate for the world’s top 50 firms fell to 17.4 percent last year from 35.5 percent in 1990. Tech giants Facebook and Amazon both paid less than that in 2020, with rates of 12.2 percent and 11.8 percent, respectively.
While France and Germany backed the 21 percent, other countries have pushed for a lower rate, as previous OECD discussions on the subject had centered around 12.5 percent, the rate charged by Ireland.
The Biden administration’s efforts for the adoption of a global corporate minimum tax rate is a bid to at least partially counteract some of the disadvantages that might arise from the president’s proposal to raise the U.S. corporate tax rate to 28 percent, a move panned by Republicans and business groups as hurting the competitiveness of U.S. companies and slowing wage growth.
The G-7 agreement sets the stage for talks in July by the broader Group of Twenty (G-20) countries, which would then be followed by discussions among some 140 nations under the auspices of the OECD. If a deal is reached at that level, individual countries would still need to pass laws to implement it.
Some economists have voiced skepticism over the Biden administration’s push for a global minimum tax rate for corporations, saying not only would it “frustrate” the free market, but it would face pushback from lawmakers in various countries.
“At the end of the day, any international agreement is essentially toothless due to the existence of national sovereignty,” Gigi Foster, professor of economics at the University of New South Wales (NSW), told The Epoch Times.
“The incentive for individual countries to offer appealing tax treatment will remain, no matter how strong the international pressure on a country to conform to some nominated standard.”
Daniel Teng and Reuters contributed to this report.