The following summarizes President Biden’s recent tax proposal made to the OECD.
The Biden administration is calling for the world’s biggest multinational companies to pay taxes to national governments based on their sales in each country, as part of an ambitious proposal for a global minimum tax. The plan would apply to the global profits of the very largest companies, including big US technology groups, regardless of their physical presence in a given country. Biden hopes the promise of a more stable international tax system will stop the proliferation of national digital taxes and break the mold of tax avoidance and profit-shifting.
The offer from Washington reflects Biden’s broader goal of ending what officials have described as a race to the bottom on global taxation that has deprived governments of revenue needed to fund basic services and investments. The Trump administration had insisted on a “safe harbour” provision that would make compliance by US technology groups voluntary. Biden dropped that demand, but this week’s proposal offers a new solution.
“Biden’s Global Tax Plan.” Financial Times (April 9, 2021).
Arcane regulations have long shaped the financial structure of international companies, which exploit legitimate loopholes to save on tax. So there will probably be a big impact from Biden’s proposal to eliminate US tax deductions claimed by those companies that make payments to related parties in low-tax jurisdictions. Biden’s proposals present a unique opportunity to reform an outdated, opaque and unfair system of global corporate taxation.
The following is what I wrote during the 2016 presidential race. It’s about time that the United States confronts global taxation. Biden’s proposals are a good start.
Malawer, “Global Taxation and U.S. Politics.“ Richmond Times-Dispatch (April 17, 2016).
Global tax avoidance is a blight on our tax system. Multinational corporations have an obligation to the communities where they do business and to the country that sustains them. U.S. multinationals benefit from U.S. laws and diplomacy. They need to act responsibly.
Global Tax Reform — Two Articles.” Foreign Affairs (2020).
While the trade war between China and the United States has hogged headlines and driven market anxieties over the past year, an equally large threat to the global economy has gotten little attention: a looming tax war. Since the early twentieth century, countries have largely agreed on how to tax income earned by multinational corporations that conduct business across borders. But this long-standing regime is coming apart, imperiling the broader international economic order.
Under historic international tax rules, governments taxed the profits of multinationals based on where intellectual property was owned, where financial risk was borne, where the parent of a multinational corporation was headquartered, and where management, research, and development took place. Countries such as China and India have long advocated major changes to the international tax system to allow more taxation of profits in “market jurisdictions”—where the customers of a corporation’s goods and services reside.