Janet Yellen is calling for a global minimum corporate tax rate. France, Germany, Japan and the European Commission are backing the proposal.
US Treasury Secretary Janet Yellen has called for a global minimum corporate tax rate, a move aimed at tackling global tax avoidance and profit-shifting to low-tax jurisdictions.
In a speech to the Chicago Council on Global Affairs, Yellen said work is underway with G20 nations to agree to a global minimum corporate tax rate that can end a “thirty-year race to the bottom on corporate tax rates.”
A global minimum tax, envisaged at 21%, would reduce the likelihood of companies relocating offshore in search of tax-friendly regimes, provided it is coupled with the elimination of exemptions on income from non-participating countries.
Meanwhile, the Biden administration is seeking to increase the US corporate rate from 21% to 28% as part of a USD 2 trillion infrastructure spending plan, after his predecessor lowered it from 35% in 2017.
“Together we can use a global minimum tax to make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations, and spurs innovation, growth, and prosperity,” Yellen said.
She said it was important to “end the pressures of tax competition” and make sure governments “have stable tax systems that raise sufficient revenues in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government.”
France, Germany and Japan have signalled support for the US approach. The European Commission has likewise backed the proposal, as it seeks to ensure that digital businesses in particular pay their fair share of tax.
The tax proposal was reportedly discussed at G20 virtual meetings held on Wednesday (March 7). Efforts are now underway to try and reach an agreement on corporate tax reform through the OECD before the July summit of G20 finance ministers.
An agreement among European countries may be difficult to achieve given the wide variation of tax rates in the EU (9% in Hungary, 12.5% in Ireland, 32% in France, 31.5% in Portugal).