US proposes global minimum taxation

From CFE Tax Advisers Europe: New proposals from President Biden’s administration have increased the likelihood on reaching a global solution for taxation of the digital economy, including minimum taxation. Seeking to reassert US leadership in global economic policy, Secretary of Treasury Janet Yellen set out proposals for global minimum corporate tax rate allowing governments to tax the global profits of 100 largest and most profitable multinationals, including the large US tech companies, regardless whether they reach a ‘permanent establishment’ threshold in those jurisdictions. The US Treasury paper setting out the proposal has been circulated to the members of the inclusive framework currently discussing the matter at the OECD level.

If the proposals are successfully agreed at the OECD, an uphill battle for President Biden would still be securing a bi-partisan agreement at US Congress, where Republicans have already expressed their discontent, arguing that the proposals give away US tax base to foreign jurisdictions.

Commenting, Secretary Yellen said: “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 in a speech to the Chicago Council on Global Affairs.

Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration, welcomed the US proposal, stating that it “reboots the negotiation of a comprehensive solution to address a comprehensive issue: digitalisation and globalisation. Very interesting and positive dynamic. Good prospect of a simplified but meaningful Pillar 1 and robust minimum tax.” The proposals were also welcomed by Italy and the Netherlands, whereas France took a more cautious approach stating that an agreement must be reached on both pillars.

However, under the proposals countries like Ireland are presumed to lose significant revenue. Under the Stability Programme Update for 2021 of the Irish Department of Finance published on 14 April, Ireland stands to lose 2 billion Euros in corporate tax revenue by 2025.

Commenting on these developments, Pascal Donohoe, Ireland’s Finance Minister said: “Small countries, such as Ireland, need to be able to use tax policy as a legitimate lever to compensate for advantages of scale, resources and location enjoyed by larger countries.” 

Source: CFE Tax Advisers Europe.

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