Compete on economic strengths, not low tax rates: Yellen
NEW YORK: US Treasury Secretary Janet Yellen said on Sunday that deterring the use of tax havens will let countries compete on economic fundamentals - instead of by offering ever-lower tax rates that deprive governments of money for infrastructure and education.
Yellen spoke ater finance ministers from the Group of 20 major economies endorsed a global minimum corporate tax of at least 15%, a measure aimed at puting a floor under tax rates and discouraging companies from using low-rate countries as tax havens.
“This deal will end the race to the botom,” she said at a news conference ater the end of the meeting in Venice.
“Instead of asking the question: ‘ Who can offer the lowest tax rate?,’ it will allow all of our countries to compete on the basis of economic fundamentals - on the skill of our workforces, our capacity to innovate, and the strength of our legal and economic institutions.”
“And this deal will give our nations the ability to raise the necessary funding for important public goods like infrastructure, R&D, and education.”
The global minimum proposal faces political and technical hurdles before it would take effect. Details are to be ironed out in coming weeks at the Organization for Economic Cooperation and Development in Paris, followed by a final endorsement by presidents and prime ministers of the Group of 20 at an Oct. 30-31 meeting in Rome.
Countries would then need to legislate the rate into their own laws. The idea is for headquarters countries to tax their companies’ foreign earnings at home if those earnings go untaxed in low-rate countries. That would remove the reason for using complex accounting schemes to move profits to subsidiaries in low-tax nations, and where the companies may do litle or no actual business.
The U.S. already has such a tax on overseas profits, but the rate is below the 15% minimum. Congressional Republicans have expressed opposition to President Joe Biden’s proposal to raise the rate on overseas corporate profits to 21% to help pay infrastructure and investments in clean energy. The Democratic president has only a narrow majority in Congress.
Three European Union countries that took part in talks over the minimum tax have refused to endorse the proposal. Ireland, Hungary and Estonia could obstruct adoption in Europe, where tax maters at the EU level require unanimity. Ireland, whose low tax rates are part of its pro-business economic model, has said its 12.5% headline rate is a fair rate.
The tax proposal would also give countries the right to tax part of the profits of big global companies that earn money in their jurisdiction but have no physical presence. Examples would include online retailing and digital advertising.
Some countries, led by France, have already started imposing such taxes on U.S. tech companies such as Google and Amazon. The U.S. considers such taxes to be unfair trade practices and has threatened retaliation through tariffs on imported goods. Under the tax deal, countries would drop those taxes in favor of a single global approach.
Top finance officials representing most of the world’s economy have backed a sweeping revision of international taxation that includes a 15% global minimum corporate levy to deter big companies from resorting to low-rate tax havens.
Finance ministers from the Group of 20 countries endorsed the plan at a meeting Saturday in Venice.
U.S. Treasury Secretary Janet Yellen said the proposal would end a “self-defeating international tax competition” in which countries have for years lowered their rates to atract companies. She said that had been “a race that nobody has won. What it has done instead is to deprive us of the resources we need to invest in our people, our workforces, our infrastructure.”
The next steps include more work on key details at the Paris-based Organization for Economic Cooperation and Development and then a final decision at the Group of 20 meeting of presidents and prime ministers on Oct. 30-31 in Rome.
Implementation, expected as early as 2023, would depend on action at the national level. Countries would enact the minimum tax requirement into their own laws. Other parts could require a formal treaty. The drat proposal was approved July 1 in talks among more than 130 countries convened by the OECD.
Italy hosted the finance minister’s meeting in Venice because it holds the rotating chair of the G-20, which makes up more than 80% of the world economy. The event also atracted around 1,000 protesters under the banner “We Are The Tide,” an umbrella group of environmental and social justice activists, including opponents of large cruise ships and the hordes of tourists they bring to the lagoon city. A small group scuffled Saturday with police ater breaking away from an approved demonstration area.