US President Joe Biden's new tax administration has shown its hand on the future of the taxation of multinational companies: a minimum international corporate tax rate in exchange for a national sales tax.
A leak to the 'Financial Times' of a proposal submitted to members of the Organisation of Economic Co-operation and Development (OECD) reveals:
- A rumoured minimum corporate tax rate of 26%.
- The ‘very largest’ global companies to pay taxes base on sales in the country of business.
Earlier in the week the US Treasury Secretary, Janet Yellen made a call for a global minimum rate of Corporation Tax. She said that her aim was to reverse "a 30-year race to the bottom on corporate tax rates."
Plans for a national sales tax may strike some in UK as 'ironic' given that back in March 2021 President Biden threatened that the US will impose trade tariffs on a range of UK exports in retaliation for the UK's Digital Services Tax. The UK's own sales tax levies 2% tax on the revenues of search engines, social media platforms and online marketplaces and is effective from 1 April 2020.
Similar threats by the US to EU exports have already meant that the EU has caved in and dropped its plans for a similar digital service tax.
The UK has also already pledged to set to raise its main rate of Corporation Tax to 25% in 2023. Any plans to lower corporation tax rates post-Brexit have been displaced by the need to funds finance the UK's Coronavirus support plan.
Although plans to align corporation tax have been long-mooted on the global stage, such are the complexities of multinational taxation that it is unclear whether tax rate-raising countries will ever be the beneficiaries of such measures.
Commenting, the Chartered Institute of Taxation’s Director of Public Policy John Cullinane, said: ‘US Treasury Secretary Yellen’s call for a minimum level of tax to be imposed on multinationals neatly brings together one strand of the Biden Administration’s domestic tax policy with one of the ‘pillars’ of the current OECD proposals to reform international corporate tax. There is also a suggestion that the US may have issues in the future with countries that allow effective corporate tax rates to fall too low’.
Race to the bottom?
And what of those nations that have benefited from Yellen’s ‘race to the bottom'?
The Republic of Ireland has attracted over 50 US companies, including Apple, Facebook, Google and Microsoft by setting a 12.5% rate. The actual rate of tax paid by the Irish companies though is considerably lower after corporations have claimed different forms of tax relief on their intellectual property assets. It seems likely that it will probably retain its US companies due to time zone, language, skills etc.
If the EU signs a taxation treaty Ireland will have no say, no veto, although Ireland will remain a pimple, albeit an emotional one on EU and US policy decision-making.
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