Push for minimum corporate tax rate has broad implications
Nobody wants to hear about higher taxes. It is unpopular, and counterintuitive to those who believe taxation is a call of death for any economies looking for growth.
But the world is different now, which is why the call by Janet Yellen, the U.S. secretary of the treasury, for a minimum corporate tax to stop the so-called race to the bottom is interesting.
The G20 corporate tax average went from 33 per cent in 2000 to roughly 27 per cent in 2020. For OECD countries, the average went from 33 per cent to 23 per cent.
Over the last two decades, depending on who was in charge in any given country, the temptation to lower corporate taxes and increase foreign direct investments at times has been overwhelming.
What the U.S. is proposing is a 21 per cent minimum federal corporate tax rate, coupled with eliminating exemptions on income from countries that do not enact a minimum tax to discourage offshoring of jobs.
Given the slim margins, the food industry has certainly been influenced by fluctuating corporate tax rates in recent years. Restaurant Brands International is essentially a Canadian company because of a tax inversion play to create a holding company, which includes Burger King, Popeyes and, of course, Tim Hortons.
When Trump lowered corporate taxes in the U.S., the urge to go south only grew.
The world appears to be of the mind that it is time to think more broadly. The European Union and Canada are favourable to discussing the issue.
TAX RATES
However, an agreement among industrialized countries might not be easy. Corporate tax rates vary widely, from nine per cent in Hungary and 12.5 per cent in Ireland to 32 per cent in France and Germany to 31.5 per cent in Portugal. The combined corporate income tax rates in Canada and the U.S. are currently 26 per cent.
Rate differentials are substantial, and the revenue base for governments to be sacrificed are significant.
Also, conversations about subsidies are also necessary. Levelling tax rates is one thing, but countries also tend to offer sweet subsidies to attract investments. Maple Leaf Foods opted to build a plant in Indiana after being offered a generous public subsidy exceeding US$50 million.
Taxing companies such as Google, Amazon, Facebook or Apple that make profits even if they do not have a physical presence in a country has been a goal of Organisation for Economic Co-operation and Development countries for years. Yet talks about global taxation schemes have always stalled, essentially because fiscal policies are often seen as highly guarded instruments that governments have at their disposal to influence their own economy.
Complying to any international guidance would mean to let go of some fiscal sovereignty. Moreover, the politics of changing tax regimes in some countries, including Canada, would be unbearable.
Still, in the post-COVID era, we should expect more global policy co-ordination. The pandemic has made many governments and, frankly, most of us realize the obvious. Health, economic and environmental risks know no borders, and methods to mitigate these risks merit a more holistic view. Countries can pursue nationalistic agendas on a variety of issues, but our collective conscious, specific to how some decisions can affect other parts of the world, has a different frame of references.
FOOD INDUSTRIES
For the food sector, Canada has seen its share of nearshoring or onshoring in recent months. Kraft-Heinz is reinvesting in Montreal, building a new plant for ketchup. AB InBev announced recently it was going to brew Corona and Stella Artois in London, Ont. Lovingly, a U.K. vegetable protein manufacturer, opened a facility in Calgary. European giant Roquette opened the world's largest pea protein plant in Portage la Prairie a few months ago.
After years of seeing food manufacturing jobs disappear in Canada, this wave of investments is welcome news.
A global push for more carbon pricing and a better appreciation for supply chain inherent risks are likely enticing companies to rethink how and where manufacturing plants ought to be built.
This systematic way of thinking is giving Canada a competitive advantage. Corporations already appear to be assessing risks differently; it is time for governments to catch up.
Generations severely affected by the pandemic will perceive risks differently than others. Citizens who pay a lot of taxes will expect governments to set up mechanisms not only to mitigate clear and present dangers but also future ones coming from abroad.
Whether it is about setting up a minimum corporate tax rate among OECD countries or something else, our selfish ways of governing are no longer viable given the global risks we must manage.
Yellen’s effort is a good one, even if it does not amount to much. Global policy harmonization thinking is needed more than ever.