In a major overhaul of the global tax system, US President Joe Biden wants the world’s largest 100 companies – those with sales of at least $ 20 billion – to pay into the coffers of countries wherever they sell their goods or services, according to proposals that have been sent to more companies. more than 130 governments involved in ongoing tax talks.
Washington’s pitch aims to divert years of fraught negotiations aimed at finding ways for countries to increase taxes on Big Tech companies, including Google and Facebook. US officials have pushed back against those plans, wanting any major overhaul to include both digital and non-digital businesses, after the US claimed that current plans are unfairly targeting their native businesses.
The US proposals – confirmed by three officials with direct knowledge of the matter – were sent on Wednesday to other countries involved in ongoing tax talks overseen by the Organization for Economic Co-operation and Development, a Paris-based group of mostly wealthy countries trying to hammer to close a global deal at the end of June.
The officials spoke on condition of anonymity because they were not authorized to speak publicly about the OECD negotiations. The Financial Times previously reported the US tax proposals.
Washington’s pitch is bold, but likely to spark controversy. It is trying to rewrite the script of a possible global deal on taxing the digital world after US officials called on all international companies – not just Google and Facebook – to submit to the new global pact.
“The United States cannot accept any result that discriminates against US companies,” the Biden administration explained in its proposals, according to a presentation of the proposal obtained by POLITICO.
Under the proposal, Biden’s government wants all international companies with annual global sales of about $ 20 billion to pay some form of corporate tax regardless of where they sell their goods or services, the officials said. That would limit the new tax to about the 100 largest companies in the world, including Google and Facebook, as well as non-digital giants such as the German car manufacturer Volkswagen.
The US proposal would target the global profits of these companies, by dividing an as yet to be determined amount of tax revenue among countries, depending on where companies sell their goods. Washington also expects countries like France and the United Kingdom to abolish existing taxes on digital services aimed exclusively at US companies once a global deal is struck.
This approach replaces existing OECD proposals to target the digital activities of multinational corporations and consumer-facing companies around the world. The complexity of shielding digital activities, including online advertising, has been criticized by the corporate giants who would have to pay taxes.
It would also replace the existing global regime to tax companies only in the countries where they make their profits.
“The US proposes to make the distinction between [automated digital services] and [consumer-facing businesses] and to focus on the 100 largest [multinational enterprises], to make the system more manageable, “European Commission Director for Direct Taxation, Benjamin Angel, tweeted Thursday. “Their proposal now needs to be studied in depth. The coming months will be crucial. “
Officials said the US approach would likely pay off as much as the digitally focused proposals currently on the table from the OECD, estimated at around $ 100 billion.
“The bottom line: comprehensive scope is the simplest and most principled of manageable options,” read the US presentation.
Bad to worse
Not everyone was pleased with Washington’s pitch.
The US proposals still do not solve the problem of corporate tax rules that allow many companies to circumvent their obligations, said Tove Maria Ryding, the policy and advocacy advocate for the European Network on Debt and Development, a community campaigning group. for a fairer global financial system.
“It’s really absurd to create a new global tax system that only applies to the 100 largest companies,” said Ryding. “What we needed was a fundamental overhaul of the broken OECD transfer pricing system – not an extra system on top of the old one.
“The corporate tax system was very complex and ineffective in the beginning – now there is a real risk that will go from bad to worse,” she added.
The OECD has been working on two initiatives, known as Pillar 1 and Pillar 2, as part of years of global negotiations. The first focuses on taxing multinationals depending on where they sell their goods and services. The second goal is to introduce a global minimum corporate tax rate in an effort to hamper tax havens.
Earlier this week, US Treasury Secretary Janet Yellen threw herself behind Pillar 2, which is comparable to the US minimum tax of 10.5 percent on the global intangible low tax income of US companies – known as GILTI.
Yellen is urging other countries to adopt Biden’s proposal to double the GILTI tax to 21 percent as a global minimum tax. The US government hopes doubling the threshold will help the White House afford a $ 2 trillion home infrastructure plan while preventing the US from being undermined on the world stage.
Still, that pitch was met with skepticism about how the rest of the world can agree to a minimum tax of that magnitude, especially as Pillar 2 negotiations through the OECD aimed to secure a minimum global corporate tax threshold of about 12.5 percent . That is the current corporate tax rate in Ireland, a popular jurisdiction for multinational companies due to Dublin’s low tax regime.