Sunday, June 20

Biden’s Corporate Tax Scheme Could Generate Billions in EU and UK, Study Shows | Biden Administration

A proposal to be tabled by US President Joe Biden at the next G7 meeting for a global corporate tax rate of 15% could bring the EU 50 billion euros (43 billion pounds) a year , and earning the UK almost an additional 200 million euros from the British multinational BP alone, according to an investigation.

If the tax rate were set at 25%, the current lowest rate within the world’s seven largest economies, the EU would earn an additional € 170 billion a year, more than 50% of current corporate tax revenue and 12% of total health spending in the block.

Questions and answers

How would a global minimum corporate tax work and why is it necessary?


Multinationals take advantage of gaps and imbalances in the international tax system through a technique known as “profit transfer”. This implies the artificial allocation of derived sales from one country to a country with lower taxes. One of the ways this is achieved is by setting up a subsidiary in a tax haven and registering your intellectual property there. Then that entity charges the company’s subsidiaries in other higher tax jurisdictions with higher royalty fees. By charging that “cost” to the market where the majority of income is made, profits can be reduced or eliminated, which means no taxes are paid. Royalty rates extracted in this way are recorded as earnings at the low-tax location. Profits are often transferred to countries like the British Virgin Islands or Bermuda, which do not charge corporate taxes.

Tax abuse by multinationals and evasion by the rich cost countries around the world $ 427 billion a year in lost revenue, according to an investigation by the campaign group Tax Justice Network. It is estimated that the UK will lose £ 25 billion of tax revenue due to the transfer of profits.

Proposals for a global minimum tax rate and the allocation of tax rights based on where companies get their money, rather than the low-tax zone a company chooses to record its profits, would help end the “race to the low “in which a nation reduces taxes. to attract business only to be surpassed by another country. Such a plan would give governments greater certainty about obtaining revenue.

There are two key strands of the plan for a global minimum corporate tax, broadly following the work of the OECD “pillar one” Y “pillar two”Blueprints for global tax reforms established in October.

Under the first pillar, tax rights would be granted to a portion of a multinational’s profits based on where its clients reside, regardless of the company’s physical presence in that location. That could include a threshold that would mean it captures the world’s 100 largest multinationals, but not the smallest companies.

Under pillar two, governments could still set whatever local corporate tax rate they wanted. But as part of a global minimum rule, if companies were to pay lower rates in a particular country, their home governments could claim “surcharges” to the agreed tax floor, eliminating the advantage of shifting profits to a tax haven.

Richard Partington

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Among UK-based multinationals, it is claimed that BP’s corporate tax bill would increase at that rate by € 484.9 million, Barclays by € 911 million a year and HSBC by € 4.2 billion.

The The estimates will be published on Tuesday by a new group of experts funded by Brussels, the EU Tax Observatory., which models the “fiscal deficit” of multinationals, defined as the difference between current tax payments and amounts owed if global profits were subject to the same rate wherever they are recorded.

Under Biden’s proposal, multinational corporations would be prevented from transferring profits across borders to exploit the most attractive locations with low taxes, as their profits would be taxed at a minimum global corporate tax rate, whether where they are registered or have its headquarters.

The Biden administration initially proposed a rate of 21%, but last week revised the target down, saying that it should be “at least” 15%, although the White House considers it a “floor” and that the discussions should continue to boost that rate.

UK Chancellor Rushi Sunak is understood to be skeptical of the higher levels proposed for a minimum corporate tax rate, while expressing his support at the outset. The Treasury has said it is concerned that the policy could lead to economic activity in the UK being taxed elsewhere. The UK has the lowest corporate tax rate in the G7 at 19%, although it will rise to 25% in April 2023.

Gabriel Zucman, director of the EU Tax Observatory, said resistance from the UK and others like Ireland, which has a 12.5% ​​corporate tax rate, shouldn’t hold back others.

He said: “Now the argument people use is, ‘Oh, but Ireland doesn’t want more than 15%, the UK doesn’t want more than 15%.’

“But that does not prevent countries that want to be more ambitious from signing an agreement in which they say to their own multinationals: ‘We are going to impose a minimum tax of 25% on your country for the country’s profits so that even if we tax your profits In Ireland, we Germany, the United States, France, we are going to charge the 15% that remains to reach 25%. And you know what Ireland can do absolutely nothing, they will uphold the correct law, but that is offset by higher taxes in the countries of origin. “

The EU Fiscal Observatory’s analysis of multinationals’ fiscal deficits is restricted to those who publish profits on a country-by-country basis, a policy that has likely been rejected by the biggest tax evaders.

However, it found that if the minimum corporate tax rate were set at 25%, EU governments would have made € 12 billion more in 2019 from banks based in the 27 countries alone, meaning that European banks they would have to pay about 45% more in taxes.

The study also suggests that the EU would benefit even if it went on its own by applying a minimum tax rate on the profits of non-EU multinationals, and an additional € 30 billion is expected to be raised by collecting a portion of the “fiscal deficit” between what is being paid. globally and the rate of 25%.

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Zucman said: “Even if there is a global agreement on taxes, there is nothing to prevent the EU, and more importantly, even an EU country unilaterally or a group of EU member states, from being more ambitious in saying : ‘We are going to apply a rate of 25%.

“And if they did, and not only did, but also collected part of the fiscal deficit from foreigners, a race to the top would be launched.

“With a 25% minimum tax, which is nothing extraordinary for the EU, it will generate 1.2% of GDP in additional revenue. So I’m not saying it’s enough to pay for Covid and all, but you know what, it could be a big part of a plan for public finances after the crisis. “

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