The message reinforced President Joe Bidens ‘recent call to raise the minimum tax already imposed on U.S. companies’ profits from their global operations, in addition to raising the domestic corporate tax rate from 21 percent to 28 percent.
Biden will double the current minimum tax rate of 10.5 percent on foreign earnings to 21 percent.
These tax proposals are intended to fund Biden’s $ 2 trillion infrastructure plan.
Current conversations: Yellen aims to advance Bidens’ goals by falsifying the international agreement on a minimum tax, leveraging negotiations through the Organization for Economic Co-operation and Development on changing cross-border tax rules in an increasingly digitalized economy around the world.
The current negotiations through the OECD, which have been going on for several years, have focused on two proposals: a minimum tax and a formula for determining where multinational companies are taxed and on income. In total, the twin boards, called Pillars One and Two, are intended to replace digital utility taxes on major U.S. tech companies like Google and Facebook that some nations have already adopted on their own, giving up international cooperation.
Some tax experts have said the US is in a good position to push the global minimum tax because of the minimum tax it imposed on US companies in 2017 for their low-tax global intangible revenue, known as GILTI.
Digital tax discussions will receive high-profile attention again this week on the sidelines of the International Monetary Fund-World Bank’s annual spring meetings, in which Yellen will attend virtually.
Since taking up her post in January, Yellen has stressed the importance of multi-state alliances and made the issue again in her speech, which she submitted online to the Chicago Council on Global Affairs. Its move to reach agreement on taxes and other fiscal policies stands in stark contrast to the former administration of President Donald Trumps, which was generally moving away from multilateralism in the economy and numerous other issues.
Working across borders is essential to economic stability, especially as the world begins to recover from the coronavirus pandemic, Yellen said.
The pitfalls remain: The G-20 countries have pledged to reach an agreement through OECD talks by mid-summer, although the obstacles that precede Yellen still present challenges, even with its more positive position during the negotiations.
A Treasury official acknowledged that reaching a political agreement by July on a global tax pact is an ambitious goal and that some countries may not participate in the board.
After all, the US may not even get on board. Convincing Congress is another test Yellen and Biden face, given concerns that the U.S. could lose tax revenue from an OECD-mediated deal that reshapes global tax bases.
GOP Threat: Senator Pat Toomey (R-Pa.), A member of the Finance Committee who writes the taxes, said in a statement that this attempt is likely to fail and even if there is some sort of agreement, it will be non-binding because it is not a treaty. Once Republicans regain control of Congress, they can and should immediately reverse these devastating tax increases.
He also said Yellens’s call for a global minimum tax was an acknowledgment that the tax increase Biden proposed would make American workers and businesses less competitive.
But Yellen said the international effort would turn what she called a 30-year race to the end of corporate tax rates.
“Competition has more to do with how U.S.-based companies compete against other companies in global mergers and acquisitions,” she said. It is about ensuring that governments have sustainable tax systems that raise enough revenue to invest in essential public goods crises, and that all citizens share the burden of government funding fairly.
Offer to end ‘system games’: The United States hopes to isolate tax havens and help ensure that corporations cannot engage in system games as they have in recent years, another Treasury official told reporters. This includes changing U.S. laws to prevent businesses from overturning and claiming tax havens as their headquarters, along with eliminating tax benefits related to offshoring.
We were looking to get the most comprehensive corporate tax deal we can, especially for a global minimum tax, the official said. Undoubtedly the major economies on board will make it much more effective in terms of implementation.
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