With the way the news cycle works these days, you can be forgiven if you can’t remember what happened last week, let alone last year. But now might be a good time to remember that the US is trying to drum up support for a 15% global corporate tax, which would be a total game-changer.
To summarize briefly, in October 2021, leaders from 136 countries, including the United States, reached an agreement to set a minimum corporate tax rate of 15% and make multinational corporations pay their taxes where they actually generate sales and profits. This would prevent the ‘race to the bottom’ in corporate tax policy that has seen some countries jostling to attract businesses with rock-bottom levies.
For decades, this international competition to charge businesses the least has prompted companies to repeatedly move their operations centers (on paper, at least).
Of course, there is always a catch. Just because a country’s leader agrees to something doesn’t necessarily mean it will be implemented internally. All leaders who have agreed in principle to the global minimum corporate tax must pass national legislation to move the deal forward. In some places, that’s a tall order.
Which one is why US Treasury Secretary Janet Yellen is touring overseas. Since the deal was struck last fall, the European Union has delayed its timetable for implementing the 15% minimum corporate tax rate by a year, and renewed objections from some states members threaten to further impede progress.
Poland was a particularly difficult resistance. In meetings in Warsaw on May 16, Yellen lobbied Polish officials, including the prime minister and finance minister, to push the deal forward.
Poland’s reservations include concerns about whether the deal will actually work to prevent large corporations from seeking tax benefits on the forum and whether now is an economically opportune time to raise Poland’s corporate tax rate, being given that the country is currently absorbing a large number of Ukrainian refugees. While acknowledging that there are still issues to iron out with Poland, Yellen told the New York Times, “We strongly believe it is in Poland’s interest to be a part of it.
Yellen’s trip also includes stops in Belgium and Germany, where she will further discuss the coordination of sanctions against Russia and disruptions to energy and food supply chains.
In the meantime, there are few guarantees that the global minimum corporate tax rate gets the support it needs at the national level. Senate Republicans were against the deal from the start, and the top Republican on the House Ways and Means Committee just clarified once again that the global minimum corporate tax rate, as well as any other deal negotiated by the Biden administration, will not become Republican. Support.
Yellen has previously indicated that she believes the United States can pass the global corporate tax rate through the budget reconciliation process, meaning it would only need to get the votes of 50 Democratic senators. Still, it’s not at all clear that the 50 Democrats in the Senate can stick together on this (or many other things, for that matter). Moreover, with midterm elections in November and a Congress full of septuagenarians and octogenarians, the slight Democratic majority, with Vice President Kamala Harris severing all ties in the Senate, could hardly be in a more precarious position.
The flow US resident corporate tax rates is 21 percent. Thus, a minimum corporate tax rate of 15% would not increase taxes for businesses located here. But it might just encourage a few more corporations to keep their operations in their home country rather than continually moving them to find lower and lower tax rates overseas.
There’s a lot to like about this global tax deal for the United States. It sure looks like Yellen, the Biden administration, and pretty much the whole world are all having a hard time putting this together. It’s good to see them there jostling for it though.
Jonathan Wolf is a civil litigator and author of Your debt-free JD (affiliate link). He taught legal writing, wrote for a wide variety of publications, and made both financial and scientific knowledge his business and pleasure. Any opinions he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization he is affiliated with. He wouldn’t want to share the credit anyway. He can be reached at [email protected].