The U.S. called for a global minimum corporate tax of at least 15%, less than the 21% rate it has proposed for the overseas earnings of U.S. businesses—a level that some nations had argued was excessive.
The contrast between the new proposal, released by the Treasury Department Thursday, and the higher rate the Biden administration is seeking to be applied to American companies underscores the difficulty of international talks being led by the Organization for Economic Cooperation and Development. Countries including Ireland have used low business taxes as a key economic development strategy. Negotiators are aiming for a deal this summer.
Treasury Secretary Janet Yellen has argued for an ambitious effort to end a global “race to the bottom” on company taxes. Such competition has eroded the revenues of governments that have run up record debt levels amid the Covid-19 crisis. Her approach marked a turnaround from the Trump administration, and has energized the talks among about 140 nations on the issue.
“It is imperative to work multilaterally to end the pressures of corporate tax competition and corporate tax base erosion,” the Treasury Department said in a statement on Thursday. “Treasury underscored that 15% is a floor and that discussions should continue to be ambitious and push that rate higher.”
The offer, which came in talks held this week, moves the U.S. closer to the 12.5% rate that had been discussed at the OECD before the U.S. re-engagement in the negotiations following Joe Biden’s election as president.
European finance ministers arriving for a gathering in Lisbon were supportive, with German Finance Minister Olaf Scholz describing the move as “big progress.” His French colleague, Bruno Le Maire, said the proposal was a “good compromise,” while cautioning that it doesn’t remove the need for an agreement on the treatment of technology giants.
“The key question is to define a global framework for digital taxation and minimum taxation and to have a political agreement no later than the G-20 at the beginning of July,” he told reporters.
His reaction chimed with that of Japanese Finance Minister Taro Aso, who also said the U.S. proposal represents progress, although more discussion is needed. While he expects movement toward global tax agreements, including a digital tax, at the G-20 meeting, he reckons final deals may not happen until later in the year.
Some lower-tax countries—such as Ireland, with a 12.5% corporate rate—had been skeptical of the 21% rate the Biden administration has urged Congress to enact for global income earned by U.S. companies.
British officials have also worried that the 21% rate was too high for the long term—even though the U.K. intends to raise its corporation tax to 25% in 2023 to replenish public finances after the pandemic.