The Biden administration has set out new proposals on taxing multinational companies in a bid to secure an international agreement aimed at reducing tax avoidance, particularly by big pharmaceutical and technology companies.
The administration is looking to limit the companies that would fall under an agreement that would address the challenge of taxing income whose location is difficult to confirm.
The proposal would focus the new tax rules on just about 100 companies, those that are very large and have high profit margins. If accepted, the move would spare hundreds of other corporations that would have been hit by the prior proposal, one that would affect large, consumer-facing businesses more broadly.
Washington hopes its proposal could bring an agreement to international talks that emerged following disclosures that companies such as Facebook Inc. and Amazon.com Inc. paid little tax in some markets in which they operated.
The administration’s proposal runs parallel to one for a global minimum corporate tax rate.
The proposal was made in a series of slides that have been reviewed by The Wall Street Journal, and were sent Wednesday to other governments. The Financial Times earlier reported on the plan.
In the presentation, the administration says it hopes its new proposal will bring stability to the international taxation of company profits, following a period in which a number of European and other governments have introduced new taxes on the profits of mostly U.S. technology companies.
The new proposal follows Monday’s call by Treasury Secretary Janet Yellen for a global minimum corporate tax rate, seeking international cooperation that is crucial to paying for the Biden administration’s proposed $2.3 trillion infrastructure proposal.
President Biden wants to raise the U.S. corporate tax rate to 28% and set the minimum tax rate on U.S. companies’ foreign income at 21%. The higher that goes, the more that creates a disadvantage for U.S.-based companies—unless other countries also adopt a minimum tax.
In seeking to reach a global agreement on a minimum rate, Ms. Yellen is arguing that countries need to work together to tighten the global tax net.
Such a minimum-tax deal is unlikely or impossible, however, unless there is also agreement on how to divide up the tax pie among countries when the location of income is hard to pin down, as is the case for companies that provide digital services.
The Group of 20 leading economies have set a mid-year deadline for concluding long-running negotiations on the two, linked issues. One problem yet to be resolved is which companies should be subject to new rules for dividing up the pie. Some governments argue that including too many companies would make the new system too complex and cumbersome. But the U.S. has resisted proposals to focus only on high-tech companies, concerned that such an approach is biased against the U.S.
The U.S. proposal would limit the number of companies subject to the new rules to no more than about 100, and ensure they were the largest and most profitable. That could mean large consumer-goods companies would avoid the new rules because they don’t have high profit margins.
The U.S. says that cutting back on the number of companies wouldn’t greatly reduce the amount of revenue countries could collect.
The proposal is likely to be broadly welcome to European and other governments, because it would give them something they have long sought: the right to raise more tax revenue from the large technology companies that have benefited most from globalization and digitization, and have made further advances during the Covid-19 pandemic.
“Countries are hungry for, they want a solution,” said Pascal Saint-Amans, the top tax official at the Organization for Economic Cooperation and Development, which is the forum for international tax talks. “What is on the table is more than reasonable.”
The Organization for Economic Cooperation and Development has been coordinating talks on overhauling the taxation of company profits since shortly after the global financial crisis, when governments started to clamp down on tax avoidance to limit their rising debts. G-20 members form the core of the process, but are joined by many other countries in what is known as the Inclusive Framework.
The U.S. position in the international negotiations has shifted over time, and the Biden administration and Ms. Yellen are putting their stamp on it.
Even under the Trump administration, the U.S. supported a minimum tax on corporate income—the second pillar of the OECD negotiations. The U.S. enacted a version of such a minimum tax in 2017, and U.S.-based companies would fare better if other countries also did so.
That minimum tax is now even more important to the U.S. because of the Biden administration’s broader tax-and-spending agenda.
This story has been published from a wire agency feed without modifications to the text.