Global Minimum Corporate Tax UPDATE: G7 agree

[Silvanus]

As we know, corporations may be based in one country, but declare profits in another (usually requiring them to have a subsidiary in that country). Probably the most famous example is Amazon, which makes tens of billions of euros in revenue per year in Europe, but declares most of its profit in super-low-tax Luxembourg, regardless of where the sales were actually made; as a result of a confidential tax agreement, it paid zero corporation tax on most of its European revenue in 2020, and was even given 56 million in tax credits.

Another egregious example is Alphabet, the parent company of Google, which managed to pay approximately 1 quarter of the average tax rate in its non-US markets for over a decade. Then we have FedEx, an American company which makes a large amount of revenue in France, Mexico, and Brazil, but has an agreement with the government of Luxembourg to apply an effective tax rate of... 0.25% to the revenue made in these three countries.

It's obvious it would be a colossal benefit for public finances across the world to address tax avoidance on a massive scale, and end the use of "tax havens" and the cynical shifting of declared revenue to low-tax jurisdictions. We're talking about tens of billions a year, here, at least.

So, we have Secretary of the Treasury Janet Yellen's initiative to introduce a global minimum corporation tax rate.

The idea is to apply a minimum rate to overseas revenue. So, say we have a US company, making most of its revenue from US-based transactions. If it were to declare that revenue in the US, it would be currently be subject to 21% tax. So, instead, it declares 90% of its revenue through its Luxembourgian subsidiary, and pays ~1% on it. Under Yellen's plan, the US can then top that up to the agreed minimum.

Yellen has introduced 15% as a starting point to begin negotiation with the OECD and the G20, but has also suggested 21% as a more realistic goal. Since the OECD works via consensus, and the plan does not impact a country's ability to levy its own taxes on local businesses' non-overseas profit, they do not actually require every country to agree. Luxembourg could still levy just 1%... but there would be no benefit to the company for the movement of revenue; the US would just levy the rest to meet the minimum.

According to Reuters, the plan already has the backing of the French and German governments, but the conservative government in the UK is objecting, and the Irish government (which levies just 12.5%, among the lowest rates in Europe) is apparently likely to lobby for a lower rate but does not object on the principle.

So, what do people think? Are there better ways to go about it? What rate is reasonable but also possible to accomplish with the OECD/ G20?

 

[Seanchaidh]

The idea is to apply a minimum rate to overseas revenue. So, say we have a US company, making most of its revenue from US-based transactions. If it were to declare that revenue in the US, it would be currently be subject to 21% tax. So, instead, it declares 90% of its revenue through its Luxembourgian subsidiary, and pays ~1% on it. Under Yellen's plan, the US can then top that up to the agreed minimum.

Interesting. But a dilemma of sorts that arises from a question: why is it that it would be specifically the United States (or whichever particular country) that gets this extra revenue? If the answer is obvious, then why do we even allow them to declare the revenue in Luxembourg (or wherever) in the first place? If it's not obvious, how would this work?

I suspect that the answer is obvious in most cases, or at the very least that it can be narrowed down to two places which is much easier to judge, resolve and settle than a list of twenty-- if it weren't obvious or close to obvious, then the proposal just wouldn't work from the start. But if that's the case, it becomes apparent that the major obstacle isn't the need for international agreement at all but instead these companies' dominance over domestic politics. And that means that the proposal will probably be (quietly) killed by the United States itself. I'd be very pleased to be wrong, however. Perhaps there are enough companies which can't find a way to meaningfully benefit from this particular kind of tax avoidance that will counteract those that can. Anything is possible.

 

[Gergar12]

The right-wing, moocher, and frankly bum governments in Ireland, Bermuda, Cayman islands, and Luxembourg, as well as Delaware sans Biden can blow me.

 

[Trunkage]

This has been a proper Libertarian (not American) talking point for a decade. They pointed to a bunch of old soviet block countries (i can't remember which) that decided to make their corporate tax rates 13 to 15% and prove how companies would move their business their businesses there

Look, I dont know. It would be far more successful than tarriffs.... but they are just going to find a different way not pay tax. Its probably pointless. That's just how capitalism works

 

[Neuromancer]

The US has found a solution that is unique to them in regards to taxes. Every country is afraid of raising their taxes because that will cause capital to fuck off elsewhere. So, naturally, you gotta make the whole world raise their taxes so that you can raise yours.

It is shit that the US can pull shit like this to potentially strong-arm other countries' sovereign economic policy. And make no mistake, this is not being done out of a desire for fairness, this is being done purely for the US' own benefit, and only its benefit.

Still, I won't shed a tear for Corps actually paying taxes for once. It doesn't fix the fundamental issues of taxation systems being decades behind in terms of policy and such, but it's still something, if very little.

 

[Agema]

According to Reuters, the plan already has the backing of the French and German governments, but the conservative government in the UK is objecting, and the Irish government (which levies just 12.5%, among the lowest rates in Europe) is apparently likely to lobby for a lower rate but does not object on the principle.

The UK is the world leader in tax havens, via its many crown dependencies. These tax havens are in essence offshoots of the City of London, which is much of why vast quantities of the world's dirtier money flows through London: it is a key part of the London financial market's strength.

One only needs to take the briefest of looks at the links between the Conservative Party and major global finance to see why the Tories would be at best lukewarm about this idea.

 

[Thaluikhain]

Every country is afraid of raising their taxes because that will cause capital to fuck off elsewhere.

They certainly claim to be, but that may or may not be the truth. IIRC, they said the same about mining companies in Australia making record profits who'd have some difficulty digging up Australian minerals offshore.

 

[Silvanus]

Interesting. But a dilemma of sorts that arises from a question: why is it that it would be specifically the United States (or whichever particular country) that gets this extra revenue? If the answer is obvious, then why do we even allow them to declare the revenue in Luxembourg (or wherever) in the first place? If it's not obvious, how would this work?

It's sometimes obvious, and sometimes not, depending on the source of the revenue in question, as far as I understand it.

A simple product sale can be easily and logically attached to the country in which that sale was made. In theory this justifies the existence of overseas subsidiaries; if an American multinational makes a sale in France, it's rational that it should pay French tax on the revenue made on that sale, so they declare it there.

But things get a lot harder to trace with cross-border digital sales (for instance), or money made from patents, or a dozen other grey areas. Companies have stretched that flexibility beyond all recognition. But it's not really actionable for the home country to just refuse to let them declare any such revenue overseas, because A) how on earth do they prove that revenue is all domestic? Cue endless litigation; and B) It would end up with the home country cheating the host country out of its deserved tax revenue. Take FedEx, a US-based company doing a lot of business in Brazil; if the US refused to let it declare overseas at all, we'd have the US cheating Brazil out of its income.

So, the idea makes sense to me: let them declare where they want. Let the host countries levy what they want. But the minimum will be paid somewhere, so the home country tops up if it's not paid to the host.

It is shit that the US can pull shit like this to potentially strong-arm other countries' sovereign economic policy.

How so, exactly? Those countries can still levy whatever they want on their own domestic businesses. That's sovereign economic policy.

The only thing they won't be able to do is attract foreign multinationals to declare their profits within their borders and then get away with paying below the minimum. But the host country isn't levying that tax. The host country levies whatever it wants.

And make no mistake, this is not being done out of a desire for fairness, this is being done purely for the US' own benefit, and only its benefit.

Sure. But I'll take benefit to the public finances over benefit to company profits any day. At least tax revenue could be spent on stuff that benefits people (well, and defence, I suppose).

 

[tstorm823]

Seems reasonable. International cooperation on tax structures is worthwhile, and while an ideal solution would be to know where things ought to be taxed and make this mostly meaningless anyway, this is way, way easier to coordinate.

 

[Gergar12]

I think if your economic model is based on being a free-rider, and profiting from the deficiency of social welfare, and generally the misery of many such as the working poor in the US, you are literal human scum.

If I were the US president( I don't want the job for lifespan reasons, but let's say I was), I would immediately sanction, and even go to war with some of the countries I mentioned earlier. They don't have any competent militaries, fuck them, and their greedy citizens of whom a majority of the actual voters voted for this.

Now obviously I wouldn't for Ireland, and Luxembourg, I would just sanction their products, and companies because if we went to war it would be a war with the EU. But I would do a naval invasion of the Cayman Islands, and of Bermuda.

 

[Silvanus]

Not obviously I wouldn't for Ireland, and Luxembourg, I would just sanction their products, and companies because if we went to war it would be a war with the EU. But I would do a naval invasion of the Cayman Islands, and of Bermuda.

The Caymans and Bermuda are, as Agema points out, British overseas territories. So... well, I suppose that doesn't mean the EU anymore either. Still, worth avoiding.

Unfortunately, though the Caymans and Bermuda (and the UK government) are responsible for the miserably low tax rates they levy, and the tax avoidance that they facilitate, they aren't responsible for the international tax structures that allow companies to declare revenue where it most suits them. So that wouldn't permanently fix the issue. Sanction one into oblivion, and another tax haven will pop up to take its place.

Besides, if the intention is to fix public finances, trade wars & sanctions & naval invasions aren't the best approach, because they're costly.

 

[Gergar12]

The Caymans and Bermuda are, as Agema points out, British overseas territories. So... well, I suppose that doesn't mean the EU anymore either. Still, worth avoiding.

Unfortunately, though the Caymans and Bermuda (and the UK government) are responsible for the miserably low tax rates they levy, and the tax avoidance that they facilitate, they aren't responsible for the international tax structures that allow companies to declare revenue where it most suits them. So that wouldn't permanently fix the issue. Sanction one into oblivion, and another tax haven will pop up to take its place.

Besides, if the intention is to fix public finances, trade wars & sanctions & naval invasions aren't the best approach, because they're costly.

I would still make examples out of them.

 

[Gergar12]

The Caymans and Bermuda are, as Agema points out, British overseas territories. So... well, I suppose that doesn't mean the EU anymore either. Still, worth avoiding.

Unfortunately, though the Caymans and Bermuda (and the UK government) are responsible for the miserably low tax rates they levy, and the tax avoidance that they facilitate, they aren't responsible for the international tax structures that allow companies to declare revenue where it most suits them. So that wouldn't permanently fix the issue. Sanction one into oblivion, and another tax haven will pop up to take its place.

Besides, if the intention is to fix public finances, trade wars & sanctions & naval invasions aren't the best approach, because they're costly.

As if I am not on a list already by multiple governments.

 

[happyninja42]

I'm in favor of everyone, individual and larger entities, chipping in to support the entire society. I think a reasonable figure that everyone contributes is more than fair. I have zero clue about what the right numbers should be, and leave that up to economists to determine. But, yeah, funneling wealth from the population, and stockpiling it in the hands of a small number, who then do nothing productive with it, just is not a model that can sustain itself forever.

 

[Gergar12]

I'm in favor of everyone, individual and larger entities, chipping in to support the entire society. I think a reasonable figure that everyone contributes is more than fair. I have zero clue about what the right numbers should be, and leave that up to economists to determine. But, yeah, funneling wealth from the population, and stockpiling it in the hands of a small number, who then do nothing productive with it, just is not a model that can sustain itself forever.

To be fair as an econ, and poly-sci major, economists don't know either. Their models on human behavior use statistical guesses. Most models are wrong.

 

[hanselthecaretaker]

Gotta wonder how many of these tax evading/minimizing/loopholing corporations supported bills for their taxes to be raised. Typical say one thing to appease one group (general public), then turn around and do another to appease the next (shareholders).

 

[CriticalGaming]

I think companies should be taxed on any and all income regardless of where they bank.

Too many companies use tax loopholes and offshore accounts to pay next to nothing in taxes when compared to their revenue. Corporations should have to pay more in taxes, and that could in turn allow the individual person to pay less income tax and give them more spending money to then buy the company's products.

The level of influence that businesses have over government politics and policy is fucking insanity. Instead of offering millions in "bribe money", just pay the fucking taxes.

 

[Silvanus]

Gotta wonder how many of these tax evading/minimizing/loopholing corporations supported bills for their taxes to be raised. Typical say one thing to appease one group (general public), then turn around and do another to appease the next (shareholders).

A lot of it, I suspect, is manipulating public perception.

A Mark Zuckerberg initiative apparently contributed over $10 million in support of California's Proposition 15, which would've adjusted the property tax owed in California to be in line with current market price (rather than purchase price), and would've affected Facebook HQ. Cue quite a few headlines for Mr. Zuckerberg, and he appears to be one of the good guys for a while.

....but, of course, property taxes are fuck-all compared to corporation taxes for a company like Facebook. And until just half a year ago, Facebook was recording over half its global revenue (~$30 billion) through a subsidiary in Ireland.

That's $101 million in tax, paid on $30 billion in revenue, $15 billion of which was profit. That's... approximately 0.6%? Am I calculating that right?

In the light of the amount of money saved from grotesque tax avoidance like that, what's a measley $10 million spent to garner some positive headlines and paint yourself as an upstanding businessman for a few weeks?

It's a matter of global financial urgency to go after global tax avoidance hard.

 

[Agema]

....but, of course, property taxes are fuck-all compared to corporation taxes for a company like Facebook. And until just half a year ago, Facebook was recording over half its global revenue (~$30 billion) through a subsidiary in Ireland.

IIRC, and with relation to Neuromancer's post (#5) is that US companies store a lot of money outside the USA, because they cannot bring it back into the USA without being hit by a tax bill comprising the difference between the tax rate in the tax haven and the tax rate in the USA. This is being done simply because the USA has realised it is in its advantage to do so - the fact it's a benefit for lots of other countries is incidental.

The USA used to announce amnesties occasionally, just to allow all these companies to finally shift the money to central HQ. I suspect with the amount of money sloshing around outside the USA's borders with aggressive use of havens, the US government is reluctant to do so again. How some of these companies use this money is quite interesting. I think I saw an article that argued that they are actually working a little like banks: rather than leave their overseas income parked, they lend it out and invest to make it work more.

 

[Silvanus]

A study's been done showing that the benefit to public finances in the UK, EU and US would be in the billions.

Biden corporate tax plan could earn EU and UK billions, study shows

EU forecast to reap extra €50bn per year with UK expected to gain €200m from BP alone

www.theguardian.com