New tax rate on top US firms abroad will help Americans at home, Yellen says
The treasury secretary Janet Yellen has said US multinationals who have spent years avoiding paying tax on American soil will be forced to help fund improvements to education, social and infrastructure programmes, thanks to the landmark global tax deal.
Speaking in Ireland, where 800 US companies are based, Yellen said the new global tax rate agreed by 136 OECD countries halted the “race to the bottom” where multinationals scoured the world for the lowest corporation tax rate, failing to pay their dues to the populations that helped them make billions every year in profits.
Joe Biden’s $1.75tn Build Back Better plan “is spread over a decade and paid for through raising revenues, not taxing working families … but in part thanks to this [OECD] tax deal by asking companies to pay more, by corporations that are very profitable and can afford to contribute revenues”.
She said the US “needed to invest in people”, particularly in education, infrastructure and broadband, telling an event in Dublin that America’s roads and bridges are falling down, and that the lack of broadband access had also hit many families hard during the pandemic. Some were forced to “drive to a parking lot outside McDonald’s for their kids to be able to do their homework and have access to the internet,” she said.
She said: “I am proud of the new international tax deal, because it not only provides benefits for everyday families, it will also stabilize the century-old international tax system.”
Yellen used the Institute of International and European Affairs in Dublin to heap praise on Ireland – an implicit thanks for eventually buckling under pressure from the US to raise its 12.5% corporation tax rate and join the 15% OECD rate.
She added: “Importantly, the deal ends the chaotic array of digital services taxes that have discriminated against Irish and US companies.”
Ireland’s economy relies heavily on US companies. Sources recently claimed in interviews with the Guardian that Microsoft, Apple and Pfizer are responsible for 30% of the country’s entire corporation tax take – the equivalent of about €4bn.
Although those three companies are heavily invested in the country, and in Pfizer’s case a substantial manufacturing base, they now face paying additional taxes at home as part of the new global tax regime.
Tax avoidance schemes such as the so-called double Irish Dutch sandwich that allowed companies like Google to funnel their huge revenues from Europe through Ireland and on to offshore zero-tax havens in the Caribbean, are now outlawed.
Yellen on Monday said Ireland will remain one of the best places in the world for multinational companies to invest in, even after Dublin gave up its prized 12.5% rate.
She said while some viewed Ireland as a tax haven, “perception often lags behind reality” and that Ireland was “already winning this new race to the top, with its robust business environment”.
Yellen said: “Here is my honest assessment of what it will not do: it won’t change this country’s status as one of the best places to do business in the world.”