The US is pushing in the G20 to adopt a global minimum corporate tax to stem the erosion of government revenue, US Secretary of the Treasury Janet Yellen said on Monday.
Just days after US President Joe Biden announced plans to raise corporate taxes in the US to finance a US$2 trillion infrastructure and jobs program, Yellen said that a collective international effort would end the “race to the bottom” on taxation.
Biden expressed outrage at multinationals such as Amazon.com Inc that have moved to tax havens or used tax loopholes, and said he would put a stop to the practice.
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His plan would raise the US corporate tax rate to 28 percent and the minimum for multinationals to 21 percent.
He dismissed concerns that the higher rate would drive companies overseas, telling reporters that “there’s no evidence of that.”
“We’re talking about a 28 percent tax that everybody thought was fair enough for everybody,” he said. “I’m going to push as hard as I can [to] change the circumstances so we can compete with the rest of the world.”
Yellen said the practice of seeking tax havens erodes government revenue and undermines an economy’s competitiveness.
“Together we can use a global minimum tax to make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations,” she said in a speech to The Chicago Council on Global Affairs.
The interconnected global economy has led to “a 30-year race to the bottom on corporate tax rates.”
However, for companies and economies to remain competitive, governments must make sure they “have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government.”
Biden’s proposal recognizes “it is important to work with other countries to end the pressures of tax competition and corporate tax base erosion,” Yellen said.
A Treasury official told reporters that the G20 goal is to have a proposal on the global minimum tax by July, and the Biden administration could, if needed, change its legislation to bring the US minimum tax into line with the international plan.
A G20 agreement would give a push to ongoing negotiations in the broader Organisation for Economic Co-operation and Development on a global minimum tax to protect all members from erosion of tax revenue.
“Taxes matter to development and it’s important that the world get it right,” World Bank president David Malpass said on CNBC.
He declined to comment on the US proposal.
Yellen’s speech, ahead of the spring meetings of the IMF and World Bank, as well as the G20 meeting, all virtual, also outlined the Biden administration’s push for multilateral cooperation.
The Biden administration already announced that it is rejoining the Paris climate accords and removed obstacles in the WTO that allowed the global body to name a new leader.
In the trade arena, she said that Washington would work with partners to “enforce a rules-based order.”
With China, the relationship “will be competitive where it should be, collaborative where it can be and adversarial where it must be,” she said.
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