Global Reaction
“You have groups of countries with different interests,” said Robert Danon, a professor of tax law at the University of Lausanne, who is also chairman of the Permanent Scientific Committee of the International Fiscal Association. “You have big countries like Germany and France, but you also have small countries like Luxembourg and Switzerland, which have of course a different perspective.”
Luxembourg Finance Minister Pierre Gramegna expressed enthusiasm in a Bloomberg TV interview, while saying small economies such as his will want their own views to be taken into consideration. Ireland, with a 12.5% corporate rate that has made it a destination for global investment, has expressed reservations.
Le Maire said that one of the biggest hurdles to the U.S. proposals may actually be the U.S. itself—in the form of the need for congressional approval of whatever deal the Biden administration signs. “We’ve had enough cold showers in recent years to remain cautious,” he said.
President Joe Biden’s plan to boost the domestic corporate tax rate to 28%, impose a 21% global minimum tax and close other loopholes to prevent avoidance of levies is supported by many Democratic members of his party. But the idea has been universally panned by Republicans and many business groups—who say it would make the U.S. less competitive. Some Democrats are seeking less aggressive measures, something that could complicate a bill getting through Congress given the party’s razor-thin margins of control.
According to the OECD, changes to how taxing rights are allocated could redistribute around $100 billion, while the minimum-tax pillar, combined with existing U.S. rules, would boost global revenues for governments by as much as $100 billion a year. Saint-Amans reckons the U.S. minimum-tax proposal would make the increase “significantly above” that. A 21% levy would be notably above other proposals that have hovered around 12.5%.
The Biden administration has also floated a compromise proposal for the other pillar of the negotiations—to consider a company’s profitability in determining whether more of its income should be taxed by the countries where it does business.
While technical analysis is still needed, Le Maire hailed it as a “positive and constructive proposal” that should include all the giant digital firms, as France had aimed for.
Aside from increasing national revenues and slicing up rights to tax big companies, one prize to be gained from an agreement is the avoidance of further damaging trade disputes.
“A minimum taxation level could prevent countries like France or Austria from rushing forward unilaterally, and tax sales of American digital companies—which would be associated with high potential for conflict,” said Gabriel Felbermayr, president of Germany’s Kiel Institute for the World Economy.
What concerns observers less at this stage is the prospect corporations will simply redouble efforts to keep revenue away from national coffers.
“This project isn’t about loopholes any more,” said Christian Frey, deputy head of finances & taxes at Swiss business lobby economiesuisse. “The competition for high value-added activities will continue anyways—maybe just not via the instrument of taxation but by other means. You won’t be able to prevent it.”