When the global economy is facing difficulties, giant multinational companies, especially Internet companies, are making more and more money. Many of them are still registering in "tax havens" to avoid tax obligations.
This unfair phenomenon may have to change. The G20 summit in Rome at the end of October supported an international tax reform plan to impose at least 15% corporate tax on giant multinational companies. Since 136 countries and regions have agreed to this plan before, the next step is to see how the details are implemented and whether countries can approve it. If all goes well, the international tax system will usher in a "milestone" change.
In the past few decades, many countries have imposed very low tax rates in order to attract foreign companies to settle in. Large companies are very profitable, and even with low tax rates, these countries are still profitable, but this has caused the bottom line of tax competition to continue to decline. Statistics show that from 1985 to 2018, the average global corporate tax rate has dropped from 49% to 24%.
Large multinational companies are taking full advantage of this situation. According to 2016 data, more than half of U.S. corporate profits are registered in the seven “tax havens” of Bermuda, Cayman Islands, Ireland, Luxembourg, the Netherlands, Singapore, and Switzerland, causing the U.S. Treasury Department to lose approximately $100 billion in tax revenue each year. . CNBC in the United States has reported that 91 of the top 500 companies in the United States paid zero federal taxes in 2018, including world-renowned companies such as Amazon, Starbucks, and IBM. No wonder when Yang Anze ran for US president in 2016, he was filled with outrage when he mentioned Amazon.
In order to solve the problem of giant companies making big money but paying less, countries have been coordinating and arguing over the past decade. After Biden came to power, he pushed for global coordination (want to increase taxes through this move to promote the huge fiscal plan of other countries). Finally, there has been a big breakthrough. First, he unified the position within the G7, and then persuaded it in the OECD. Hungary, Ireland and other countries agreed to reform, and then won the approval of most countries in the world. The establishment of the world's lowest corporate tax rate is finally in sight.
The new agreement roughly includes two parts, namely two pillars. The "first pillar" is to levy taxes on the world's 100 largest companies. To be more specific, among these companies, those with a profit of more than 20 billion U.S. dollars and a profit margin of 10% need to pay taxes to the country where it does business (not the country where the company headquarters is located), so as to prevent these companies from making money in one country but not Tax payment situation; the "second pillar" is to establish a globally unified minimum corporate tax rate, which is now set at 15%, hoping to curb the tendency of large companies to go to "tax havens" to evade their obligations.
It is now generally believed that if these two measures are implemented in 2023 as scheduled, countries can levy an additional US$200 to 300 billion in taxes. However, critics believe that, given that these large companies are mostly developed countries and some poor countries hope to attract international companies with low tax rates, this plan actually "closes" the development channels of some poor countries. Kenya, Pakistan, Nigeria, Sri Lanka and other countries did not approve of this measure, which illustrates this point from the side.
The agreement has been reached, but there are still many details to be implemented and many obstacles are faced. Ironically, the biggest obstacle may come from the United States. Because this agreement requires the ratification of the contracting states, and because the agreement has an "international treaty" nature, the US Senate needs 2/3 votes to pass it. At present, there is a lot of controversy over this kind of international tax reform in the United States, and it is not easy to negotiate the US Senate.
This is reminiscent of after World War I, US President Woodrow Wilson rushed to France with a large delegation, ambitiously presided over the peace meeting, established the League of Nations (League of Nations), and arranged for a new post-war order. However, after he returned to China, the U.S. Senate gave him a blow. It did not approve the "Versailles Peace Treaty" and the United States failed to join the League of Nations.
I don't know if Biden will suffer the same fate.
