136 countries agree on minimum global corporate tax, but Republicans say no

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Published 1st of August

Multinational corporations are currently engaging in aggressive global tax avoidance strategies, which are seriously hurting the US economy. For example, a Senate Finance Committee reported this month that pharmaceutical giant AbbVie made three-quarters of its sales to US customers in 2020, but reported only 1% of its revenue in the US. . This action effectively reduced AbbVie’s effective tax rate to approximately the half required by law.

The International Monetary Fund reports that tax havens collectively cost governments between $500 billion and $600 billion a year in lost corporate tax revenue. US Fortune 500 companies alone held about $2.6 trillion overseas in 2017.

Guillaume Felix [ UNKNOWN | Photo: Courtesy ]

This loss of revenue hampers the U.S. government’s ability to provide the “public goods” essential for businesses and citizens to flourish, including environmental protection and pandemic prevention. To start a business, an entrepreneur depends on critical government action to maintain a peaceful society, create efficient transportation and education systems, and provide clean air and water. A businessman’s ability to produce ‘private goods’ or services to sell in the market depends on the provision of these other ‘public goods’. Tax evasion by parking money offshore in “tax havens” undermines our government’s ability to provide these essential public goods.

To curb these aggressive tax avoidance actions, President Joe Biden and Treasury Secretary Janet Yellen have achieved remarkable foreign policy success that will greatly benefit American citizens and the global economy. One hundred and thirty-six countries have signed an agreement guaranteeing that all companies pay a minimum tax rate of 15%. These countries supporting a global minimum tax rate together represent more than 90% of the global economy. The Organization for Economic Co-operation and Development (OECD) estimates that this minimum tax will generate $150 billion in global tax revenue annually.

The minimum global corporate tax aims to end decades of “tax competition” between countries to attract foreign investment. Multinationals have taken advantage of this environment and shifted their profits and tax revenues to low-tax countries, regardless of where their sales are made.

When the new agreement takes effect, companies that pay a lower rate in a particular country will see their taxes “raised” by a minimum of 15% in their home country. This would remove the incentive for companies to shift profits to tax havens such as the British Virgin Islands, Cayman Islands and Bermuda, the top three countries on the Tax Justice Network’s Corporate Tax Haven Index. Economists say the deal will encourage multinational corporations to repatriate capital to their home countries, which will strengthen those governments’ ability to deliver public goods to their citizens.

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As Yellen put it, “(The) Global Minimum Tax would end the race to the bottom in corporate taxation and ensure fairness for the middle class and working people in the United States and around the world.”

Republicans have recognized and drawn attention to the problems of massive corporate tax avoidance. As a presidential candidate, Donald Trump pointed out the unfair corporate tax policy. Trump said, “What’s happening is companies are leaving our country…to get a better tax deal.” The Republican Party’s latest platform said, “We endorse the recommendation…to move to a territorial system of taxation so that profits earned and taxed overseas can be repatriated for job-creating investments here. with us”.

However, in this election season, Republicans are desperate to avoid giving President Joe Biden victory and falsely claim that the deal would reduce our country’s competitiveness and cede a level of tax decision-making to foreign countries. In fact, the deal, as Yellen puts it, “will level the playing field in the taxation of multinational corporations,” which could spur innovation and growth in the country.

The 136 countries that have signed this agreement include democracies, autocracies and dictatorships; capitalists, socialists and communists; Christians, Jews and Muslims. The main supporter of the world — the Republican Party.

William F. Felice is Emeritus Professor of Political Science at Eckerd College. He is the author of six books on human rights and international relations. He can be reached via his website at williamfelice.com.

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