Major EU states, IMF and even Bezos back minimum corporate tax rate

G20 is set to discuss the US proposal to counter tax avoidance and the use of tax havens, but no agreement is expected yet on what the base rate for corporate tax might be

Major EU states, IMF and even Bezos back minimum corporate tax rate
Amazon CEO Jeff Bezos said he supports President Biden's 'bold' infrastructure plan and 'recognizes that this will require concessions from all sides'. Photo: Reuters.

(ATF) Germany, France and the International Monetary Fund were quick and emphatic in their endorsement of the US proposal for a global minimum tax rate for corporations on April 6.

Even Amazon CEO Jeff Bezos – who has faced withering criticism from new US President Joe Biden for his company's tax minimisation – came out in support.

Biden is pushing to increase corporate tax rates from 21 to 28% to help fund his national infrastructure plan. He also wants to close loopholes that allow companies to move profits overseas.

Bezos said in a blog post on Tuesday: “We support the Biden Administration’s focus on making bold investments in American infrastructure. We recognise this investment will require concessions from all sides.”

Bezos’s statement of support comes after the largest US online retailer faced criticism from the White House, Congress and social media for paying little or no federal income taxes.

Biden singled out Amazon last week as one of nearly 100 Fortune 500 companies that use loopholes to pay “not a single solitary penny” in federal income tax. He said in 2019 that Amazon shouldn’t be paying less in taxes than firefighters and teachers.

After paying no federal income tax in 2017 or 2018, Amazon reported over $160 million in tax liability for 2019 and nearly $2 billion for 2020.

G20 agenda item

But now major reforms aimed at ending tax competition between countries and the use of tax havens by companies will be on the agenda of G20 finance ministers when they meet virtually on Wednesday (tonight Asian time), and the group could unveil a proposal by July.

The idea has been promoted by the Organisation for Economic Cooperation and Development but received a boost this week when US Treasury Secretary Janet Yellen said she would push for an agreement among the advanced economies in the G20.

"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," Yellen said on Monday.

The OECD has been coordinating tax negotiations among 140 countries for years on two major efforts: setting rules for taxing cross-border digital services and curbing tax base erosion, with a global corporate minimum tax part of the latter.

The OECD and G20 countries aim to reach consensus on both fronts by mid-year, but the talks on a global corporate minimum are technically simpler and less contentious. The minimum tax is expected to make up the bulk of the $50-$80 billion in extra corporate tax that the OECD estimates companies will end up paying globally if deals on both efforts are enacted.

If countries agree on a global minimum, governments could still set whatever local corporate tax rate they want. But if companies pay lower rates in a particular country, their home governments could "top-up" their taxes to the agreed minimum rate, eliminating the advantage of shifting profits to a tax haven.

The idea is to ensure companies pay a minimum amount of tax regardless of where they are located, preventing firms from evading taxes by establishing headquarters in countries with lower rates -- a practice prevalent among tech companies which drains resources from government coffers.

The United States lowered its corporate tax rate in 2017 under former president Donald Trump. But President Joe Biden last week proposed raising the rate again to finance a massive $2 trillion infrastructure and jobs plan.

However, Yellen has said it would be best to couple a US rate increase with the establishment of a global minimum tax to end the "race to the bottom" among countries to see who implements the lowest rate.

'Seize the day!'

Washington's allies welcomed the US push, with French Finance Minister Bruno Le Maire saying "a global agreement on international taxation is now within reach" and called on countries to "seize this historic opportunity."

German Finance Minister Olaf Scholz called Yellen's announcement a "great step forward" in the battle to stem the erosion of government revenues. "The support of the USA gives this initiative a strong tailwind," Scholz said, adding he hoped a deal could be reached this year.

The European Commission expressed a similar sentiment, with spokesman Daniel Ferrie saying the bloc called on "all global partners to remain engaged in these discussions and to continue the work without delay."

The IMF's chief economist Gita Gopinath said: "We are very much in favour of a global minimum corporate tax."

Speaking at the start of the spring meetings of the IMF and World Bank, she underscored the "large amount" of tax avoidance and "countries sending money to tax havens."

"That's reducing the tax base on which governments can collect revenues and do the necessary social and economic spending that's required."

The international reform would be comprised of two components: a minimum tax rate and the establishment of a system to modulate corporate taxes based on profits in each country, regardless of where they are headquartered -- which would likely impact tech giants the most.

No official global minimum tax rate on corporations has been decided, but estimates range between 12.5% and 21%.

With reporting by AFP and Reuters

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Corporate tax tax avoidance Global minimum corporate tax rate Yellen France Germany IMF OECD Jeff Bezos Biden infrastructure plan