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Yellen pushes for global minimum tax rate to create ‘better playing conditions’

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High corporate taxes are a major part of President Joe Bidens’s $ 2 trillion infrastructure package payment. In order for US multinational companies not to be at a competitive disadvantage, the administration is lobbying for other countries to engage in a tax floor.

In a speech to the Chicago Council on Global Affairs Monday, Treasury Secretary Janet Yellen warned of a return to multilateralism after four years of diplomatic and economic isolation. America first should never mean America alone, Yellen said.

This is an area in which the United States is trying to exercise some direction, said Eric Toder, associate of the institute at the Urban-Brookings Center for Tax Policy.

Yellen called on other nations to support the initiative, saying the US is working with other G20 nations to develop and implement a global minimum tax, which she said will stop the race to the end and promote more equitable economic growth between countries and regions.

Together we can use a global minimum tax to ensure that the global economy thrives based on a more equitable playing field in multinational corporate taxation and fosters innovation, growth and prosperity, she said.

The Bidens plan calls for a 28 per cent corporate tax rate effectively splitting the difference between the 21 per cent rate signed into law in 2017 and the 35 per cent that was before the GOP tax cuts and doubling the current tax rate. offshore by 10.5 percent.

The president dismissed the idea that raising corporate tax rates would hamper America’s economic recovery. telling reporters at the White House on Monday, there is no evidence for this.

Policy observers say a global minimum tax would be a boost to domestic corporate tax ambitions. world they reserved their profits, corporate America would have little reason to set up figure offices in countries with little business activity but low tax rates.

Discussing this only now suggests they are worried about capital flight if they raise corporate taxes on the infrastructure bill, said Michael O. Moore, a professor of economics and international affairs at George Washington University.

Business is multinational these days, and the idea of ​​staying corporate makes little economic sense, Toder said. Although it is a thorny question now for businesses ranging from social media platforms to drug manufacturers, the issue of finding or relocating a company for the purpose of tax evasion has only arisen recently.

The problem has gotten much worse in the last 20-25 years. The nature of business has changed and become more global, and much more value added is in intellectual property compared to factories, Toder said. Computer code, chemical formulas and the like are movable assets in the form of non-jet machines or engines.

Secretary Yellen has the advantage of being well-known and highly regarded by her peers in the global economic scene, and her words carry weight, noted Tom Martin, senior portfolio manager at Global Investments. Overall, Janet Yellen has an excellent reputation as a thoughtful and sophisticated global market player. Hard to remove the gravity it brings, he said.

But it too will have a heavy rise that is uniting a multinational consortium to agree in principle, let alone negotiate specifics like a current global tax rate, which was not addressed on Monday. Achieving compliance can be a significant challenge, some said. Incentives for a government to drop such a promise of a minimum corporate tax will be predominant, Moore said.

Countries that decide to attract desirable firms or activities will find a way around the global minimum with tax credits [or] special discounts, said Gary Hufbauer, a senior nonresident associate at the Peterson Institute for International Economics. China will not pay attention to the global OECD minimum. Neither Russia nor many other countries will do that.

The administration is also likely to face resistance at home to any revenue-generating plans by raising corporate taxes, with Republican lawmakers already in power opposing Bidens’ proposal to fund his infrastructure plan.

In theory, an international tax with agnostic border enforcement would be an equalizer between companies but it is an open question whether or not CEOs will want to trade the security of a fixed tax rate for the opportunity to make more profit. To the extent that it affects everyone equally, then it is not at all from a competitive standpoint, Martin said.

If you only tax US companies on their worldwide revenues, it really puts them at a disadvantage, Toder said. If Biden tries to impose a tax on American companies and other countries do not follow it, this is a recipe for failure.

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