Treasury Secretary Janet Yellen has argued for an ambitious effort to end a global “race to the bottom” on company taxes. Such competition has eroded the revenues of governments that have run up record debt levels amid the Covid-19 crisis. Her approach marked a turnaround from the Trump administration, and has energized the talks among about 140 nations on the issue.
“It is imperative to work multilaterally to end the pressures of corporate tax competition and corporate tax base erosion,” the Treasury Department said in a statement on Thursday. “Treasury underscored that 15% is a floor and that discussions should continue to be ambitious and push that rate higher.”
The offer, which came in talks held this week, moves the U.S. closer to the 12.5% rate that had been discussed at the OECD before the U.S. re-engaging in the negotiations following Joe Biden’s election as president.
Japanese Finance Minister Taro Aso, speaking to reporters in Tokyo, said the U.S. proposal represents progress, although more discussion is needed. He said he expects movement toward global tax agreements, including a digital tax, at the G-20’s summer meeting, but final deals may not happen until later in the year.
Some lower-tax countries — such as Ireland, with a 12.5% corporate rate — had been skeptical of the 21% rate the Biden administration has urged Congress to enact for global income earned by U.S. companies.
British officials have also worried that the 21% rate was too high for the long term — even though the U.K. intends to raise its corporation tax to 25% in 2023 to replenish public finances after the pandemic.
Thursday’s proposal comes before a June 4-5 meeting of Group of Seven finance chiefs in London that offer a forum for key industrial nations to forge a consensus.
The Biden administration is also hoping to secure a broad OECD deal on a global minimum rate before Democrats take up the push in Congress to increase U.S. corporate taxes. The White House has proposed a 28% domestic corporate tax rate, up from 21%, to help pay for Biden’s $4 trillion in longer-term economic programs.
Republicans have opposed both the domestic and global tax efforts by the Biden administration, which mark a sharp reversal of President Donald Trump’s policies. Key moderate Democratic Senator Joe Manchin has called for a smaller corporate tax hike.
“It’s really important that Secretary Yellen not give away our tax base in these discussions,” Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee, told reporters Thursday. “I worry that her begging other countries to raise their tax rates because America is voluntarily making ourselves un-competitive.”
The American proposals have also set an objective of ensuring that the world’s 100 or so biggest companies pay more in places where they actually do business. Questions remain over the enforceability of such a move, the dispute resolution and how poorer economies could benefit.
Yellen’s approach has prompted a warmer reception from larger countries who have the most to gain by capturing revenue from global companies operating in lucrative domestic markets. France was among those endorsing the U.S. moves. Other nations that earn money from hosting multinational companies have reservations.
According to the OECD, changes to how taxing rights are allocated could redistribute around $100 billion, while the minimum-tax pillar, combined with existing U.S. rules, would bolster global revenues for governments by as much as $100 billion a year.