Biden Proposes Comprehensive Reforms To End “Profit Shifting” To Tax Havens | Tax evasion
President Joe Biden has proposed sweeping comprehensive tax reforms that would limit the ability of multinational corporations to shift profits overseas, while taking steps to forge a landmark deal on a global minimum tax rate.
The proposals are designed to tackle the very low tax rates paid by digital giants Google, Facebook and Apple, and big brands like Nike and Starbucks, which have become adept at using complex corporate networks to transfer profits outside major markets such as the UK, where most of their income is earned, and in low tax jurisdictions such as Ireland and the Caribbean. Economists estimate that the sums lost to banks around the world due to the profit shifting reached $ 427 billion (£ 311 billion).
The Biden plan, described as “seismic” in its potential impact, is seen as a radical change, moving the United States away from decades of prioritizing the fiscal sovereignty of nations. The world’s largest economy has long resisted calls for global treaties that tax reformers said were necessary to ensure powerful multinationals pay their fair share of taxes.
As part of the plan promoted by Washington, set out in a document sent Wednesday to 135 countries negotiating tax reforms at the OECD, tech companies and large conglomerates would be forced to pay taxes to national governments based on the sales they make. generate in each country, regardless of where they are based.
The Biden administration has also weighed heavily on work to establish a global minimum tax rate, which would allow some of the world’s largest economies to agree to a minimum tax rate on corporate profits. companies. The current corporate tax rate in the US is 21%, compared to 19% in the UK and 12.5% in Ireland, one of the lowest among EU countries.
Countries could impose higher corporate tax rates, but not fall below the agreed threshold. The agreement aims to prevent countries from attracting businesses by offering them tax cuts.
Pascal Saint-Amans, head of tax administration at the OECD, told the Guardian that the Biden plan has the potential to be transformative, although there are still several negotiating stages left. “What the United States has put on the table… [is saying] we want the rest of the world to follow, we are killing tax havens. The game is over. Let’s move on to an agreed minimum level.
“Countries want a solution. They want to get out of the controversies and move on. “
The plan comes as the White House seeks to launch a $ 2 billion (£ 1.5 billion) infrastructure program to shore up Covid’s economic recovery, funded by plans to raise the tax rate of companies in the United States from 21% to 28%. The increase would reverse the cuts imposed by Donald Trump. Officials estimate the increase would raise $ 2.5 billion over 15 years.
However, Biden would face strong opposition from Republicans and would need all-party support to lead the plan through a 50-50 split Congress. As a sign of the challenge facing the president, centrist Democratic Senator Joe Manchin has already said he would favor a 25% corporate tax rate rather than 28%.
The proposals at the OECD came after G20 finance ministers agreed on Wednesday to make progress in seeking an international consensus on tackling tax evasion.
They plan to work on a deal at the OECD forum, hoping for an agreement on overhauling the global tax system in time for a summit of G20 finance ministers in July.
Biden’s plans support fundamental reforms already drafted by the OECD.
Saint-Amans said the US plan will affect around 100 of the world’s largest companies, including tech giants such as Google, Apple and Amazon. The exact threshold for corporate profits and the rate of corporate tax that would be levied have not yet been agreed.
Tax activists have said the US intervention marked a radical change in Washington and raised the prospect that the most important tax reforms in more than a century will be approved by world leaders as early as this summer.
Paul Monaghan, chief executive of the Tax Mark campaign group, said: “The impact on Amazon, Apple, Facebook and Google would be seismic… with billions in additional taxes paid in the United States and Europe.”
Frustrated by the lack of progress after years of negotiations, several countries, including the UK and France, have launched unilateral taxes on digital services in response to growing public anger over taxes paid by multinationals and technology companies – while promising to abandon them if a global agreement is reached.
Anneliese Dodds, the shadow chancellor, said Biden’s decision was welcome and the UK government must now play its part. She said a deal on global tax reforms was long overdue and was particularly needed “to level the playing field between brick-based and click-based businesses to help deliver a better future for our people. main streets ”.