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Global Tax Deal on Hold Due to Doubts in the U.S. and Europe

plan global de impuestos

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After months of negotiation, a global tax agreement seemed a done deal, as more than 130 nations would agree to establish a system that in theory would eliminate the so-called tax havens in the financial sector. But today that agreement seems distant and has been paralyzed by internal disputes within the United States and the European Union.

The global tax agreement had been under negotiation between the United States and the European Union since the Obama era, however, negotiations were stalled with the presidency of Donald Trump. With the return of the Democrats to the White House, the plan gained new momentum and once again American and European lawmakers came to the table.

Two pillars make up the global tax plan cooking in the corridors of Washington and Brussels. The first is the establishment of a minimum tax of 15% on corporate income in the 130 signatory nations of the agreement.

This is intended to prevent U.S. companies from avoiding taxes by setting up in countries with low corporate taxes, sometimes called tax-havens. In the past, Ireland was one of the European Union countries most opposed to this measure, however, after years of talks, Dublin has finally given in.

Global tax
Janet Yellen has insisted on the need for a global tax deal since she took office as Treasury Secretary. (Image: EFE)

The second pillar encourages nations to tax the sales of large corporations in their territory. This pillar aims to tax especially technology companies, which some governments accuse of having millionaire sales in their countries and not paying taxes because they do not have a tax headquarters within their borders.

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This tax has been implemented by France, where it is known as the Google Tax. Some other European countries, such as Spain and the United Kingdom have implemented similar taxes on corporations with more than $500 million in sales in their territory.

The global tax plan aims to put additional taxes on the world’s 100 largest companies, which include tech giants such as Amazon, Google/Alphabet, and Meta.

U.S. Treasury Secretary Janet Yellen has been a vocal proponent of this global tax plan. On several occasions, she has urged G-20 members to support the implementation of the international tax program. Numerous finance ministers of European nations have also given their support.

Global corporate tax deal in stalemate on both sides of the Atlantic

On both sides of the Atlantic, however, the passage of the global tax plan is getting complicated. On the U.S. side, the Democratic Party is unable to agree on the spending proposals that should accompany the tax proposal. Republicans show no signs of intending to vote for any legislation or tax reform.

With no compromise from the Republican Party, all congressional Democrats must approve every amendment for the bill to pass.

global tax
Poland has put obstacles to a global tax agreement. (Images: EFE)

Meanwhile, in Europe, after years of facing stiff opposition from Ireland, now that the Celtic country has relented, the stumbling block is Poland. Polish officials have expressed technical concerns about part of the global tax deal, although some analysts argue that the Polish government is seeking more money from the European Central Bank’s pandemic aid package.

If the agreement fails to prosper in either the United States or the European Union, it is likely that other nations will back down from their decision to pursue the implementation of a global tax plan, as in many cases it is developing nations that have benefited the most from the migration of these companies.