Monday, June 21, 2021

Washington widens digital tax push to target world’s largest 100 companies – POLITICO

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In a major overhaul of the global tax system, U.S. President Joe Biden wants the world’s largest 100 companies — those with revenues of at least $20 billion — to pay into countries’ coffers wherever they sell their goods or services, according to proposals sent to more than 130 governments involved in ongoing tax talks.

Washington’s pitch aims to redirect years of fraught negotiations that have centered on finding ways for countries to increase taxes on Big Tech companies including Google and Facebook. U.S. officials have pushed back against those plans, and want any root-and-branch overhaul to include both digital and non-digital firms after the U.S. claimed the current plans unfairly target its homegrown companies.

The U.S. proposals — confirmed by three officials with direct knowledge of the matter — were sent Wednesday to other countries involved in ongoing tax talks overseen by the Organization for Economic Cooperation and Development, a Paris-based group of mostly rich countries that is trying to hammer out a global deal by the end of June.

The officials spoke on the condition of anonymity because they were not authorized to speak publicly about the OECD negotiations. The Financial Times earlier reported the U.S. tax proposals.

Washington’s pitch is bold, but will likely lead to controversy. It is trying to rewrite the playbook on a potential global deal on taxing the digital world after U.S. officials called on all international companies — and not just Google and Facebook — to be subject to the new global pact.

“The United States cannot accept any result that is discriminatory towards U.S. firms,” the Biden administration laid out in its proposals, according to a presentation of the proposal obtained by POLITICO.

Under the proposal, the Biden administration wants all international companies with annual global revenues of around $20 billion to pay a form of corporate tax wherever they sell their goods or services, the officials said. That would limit the new levy to roughly the 100 largest companies in the world, including the likes of Google and Facebook, but also non-digital giants such as German automaker Volkswagen.

The U.S. proposal would target these companies’ global profits, dividing a yet-to-be-determined amount of tax receipts between countries, depending on where firms sell their goods. Washington also expects that countries such as France and the United Kingdom will remove existing digital-services taxes that are solely focused on U.S. companies, once a global deal is agreed.

This approach would supersede the OECD’s existing proposals to target multinational firms’ digital activities and consumer-facing business around the world. The complexities of ringfencing digital activities, including online advertising, have attracted criticism from the corporate giants that would have to pay any taxes.

It would also replace the existing global regime of taxing companies only in the countries where they book their profits.

“The U.S. are proposing to drop the distinction between [automated digital services] and [consumer-facing businesses] and to focus on the 100 largest [multinational enterprises], to make the system more manageable,” the European Commission’s director for direct taxation, Benjamin Angel, tweeted Thursday. “A close examination of their proposal is now needed. The months to come will be crucial.”

Officials said the U.S. approach would likely bring in as much as the digital-focused proposals currently on the table from the OECD, estimated at around $100 billion.

“Bottom line: comprehensive scope is simplest and most principled of administrable options,” the U.S. presentation read.

Bad to worse?

Not everyone welcomed Washington’s pitch.

The U.S. proposals still don’t solve the problem of having corporate tax rules that allow many firms to circumvent their obligations, according to Tove Maria Ryding, the policy and advocacy manager for the European Network on Debt and Development, a civil society group that campaigns for a more equitable global financial system.

“It’s really absurd to set up a new global tax system that only applies to the 100 largest corporations,” Ryding said. “What we needed was a fundamental reform of the broken OECD transfer pricing system — not an extra system on top of the old one.

“The corporate tax system was highly complex and ineffective to begin with — now there is a real risk that will be going from bad to worse,” she added.

The OECD has been working on two initiatives, known as Pillar 1 and Pillar 2, as part of the years-long global negotiations. The first focuses on taxing multinational companies, depending on where they sell their goods and services. The second aims to introduce a global minimum corporate tax rate in a bid to hobble tax havens.

Earlier this week, U.S. Treasury Secretary Janet Yellen threw her weight behind Pillar 2, which is similar to the U.S.’s 10.5 percent minimum tax on American companies’ global intangible low-tax income — known as GILTI.

Yellen is pushing further, urging other countries to adopt Biden’s proposal to double the GILTI tax to 21 percent as a global minimum tax. The U.S. administration hopes that doubling the threshold will help the White House to pay for a $2 trillion infrastructure plan at home, while preventing the U.S. from being undercut on the global stage.

Yet that pitch has been received with skepticism on how to get the rest of the world to agree to a minimum tax of that magnitude, especially as Pillar 2 negotiations via the OECD have focused on securing a minimum global corporate tax threshold of around 12.5 percent. That’s the current corporate tax rate in Ireland, a popular jurisdiction for multinationals because of Dublin’s low-tax regime.

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