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The finance ministers of the G20 (the group of the 20 most prosperous economies in the world) assured that they would reach an agreement on a global tax on corporate profits by the middle of this year.
The meeting took two days and U.S. Treasury Secretary Janet Yellen advocated for this global minimum tax, which is needed to go ahead with funding President Joe Biden’s infrastructure plan that would cost about $2.3 trillion.
Part of the rationale for the global tax is to prevent American companies from losing competitiveness against foreign companies in the face of an increase in domestic taxes, as part of the tax reform contemplated by Biden, which would increase the corporate tax rate from the current 21% to 28% on profits.
After massive public indebtedness due to pandemic, global tax has gained popularity
In the wake of massive borrowing by governments around the world to contain the pandemic, states are looking for new taxes to prevent tax evasion by large companies around the world to raise more money to service their debt.
To date, the effort to contain the pandemic has cost governments more than $16 trillion, according to figures from the International Monetary Fund (IMF). This implies that government debt will reach 97% of global gross domestic product (GDP), exceeding 84% in 2019. In this sense, the IMF estimates that indebtedness will stabilize at 99 % this year.
Since October 2020, negotiations between the G20 and other member countries of the Organization for Economic Cooperation and Development to establish a global tax on corporate sales abroad have been resumed, after being repeatedly postponed due to the pandemic.
Yellen proposes an increase to the global minimum tax on the profits of foreign corporations selling in the United States, the increase would be from 10.5%, set by Donald Trump’s administration, to 21%.
Standardized tax rates
In France, the United Kingdom and Spain there is already a minimum tax for companies with sales over 50 million euros. In France, it was restored by the government of Emmanuel Macron and is known as Google Tax. If an agreement is reached, it would harmonize sales tax rates for foreign companies, which currently range from 19% of sales in France to 35% in the United Kingdom.
This new tax aims, in part, to capture the sales and services of technology companies in the world such as Amazon, Google and Facebook, which, despite being based in the United States, have sales all over the world, but the taxes they pay do not reflect the value of their economic activities outside the U.S.
About 40% of the profits of American corporations abroad come from countries with relatively low taxes, such as Ireland, Luxembourg and the Netherlands.
The actual impacts of a global 21% tax on corporate income are not yet known. However, the 10.5% tax on global tangible corporate income imposed by President Trump’s Tax Cuts & Jobs Act significantly reduced the relocation of profits by American corporations to tax havens, since even if the company was set up in a haven, for its US sales it had to pay taxes, so for many companies it simply ended up being a better option to stay in the country.
Economist, writer and liberal. With a focus on finance, the war on drugs, history, and geopolitics // Economista, escritor y liberal. Con enfoque en finanzas, guerra contra las drogas, historia y geopolítica