BofA says risk of hitting global corporate minimum tax is increasing – thanks to Biden

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Topline

As lawmakers and political experts in Washington debate the merits of President Biden’s proposed changes to the corporate tax system, experts at Bank of America said on Friday that one element of Biden’s plan – a global minimum tax – had a better chance of coming true than he used it. at. Here’s why.

Highlights

Unlike Biden’s other tax proposals, a global minimum tax cannot be passed by the United States alone: ​​other global economies should also agree on the minimum and commit not to reduce it.

The Biden administration hopes that this kind of international cooperation on corporate taxes will prevent multinational companies from relocating in search of lower tax rates because the rates would be essentially the same everywhere.

“It’s very difficult to get global tax deals,” analysts wrote, “but the odds are better now than in the past.”

This is in part because of the current political environment, which analysts call “ripe for progress.”

They cite elements of President Trump’s 2017 tax cuts and jobs law aimed at reducing profit shifting as evidence of common ground between Republicans and Democrats on the issue – despite disagreements over details of the policy – and note that attention around the world is now turning to issues related to income and wealth inequalities.

Analysts also suggest that despite the difficulty in enforcing a global minimum tax, other elements of Biden’s plan and proposed changes in work at the Organization for Economic Co-operation and Development may be enough to bring about other countries to join the plan.

Crucial quote

“Together, we can use a global minimum tax to ensure that the global economy thrives on a more level playing field in corporate taxation and drives innovation, growth and prosperity,” said Treasury Secretary Janet Yellen earlier this month.

Large number

7. Out of the top ten profit sites of American multinationals in 2018, it is the number of them that are considered tax havens, according to the Treasury Department: these are Bermuda, the Cayman Islands, Ireland, Luxembourg, the Netherlands, Singapore and Switzerland. These seven small countries accounted for 61% of the after-tax income of U.S. multinationals in 2018 and 2019.

Chief critic

Many companies are opposing Biden’s demand for a global minimum tax. “The members of the Business Roundtable applaud the administration’s commitment to ensuring that the international tax system creates a level playing field for American companies engaged globally,” said Group CEO Joshua Bolten, in a press release. “The administration’s proposed minimum worldwide corporate tax rate, however, threatens to subject the United States to a major competitive disadvantage.”

Key context

Biden campaigned on a platform of tax hikes for the rich and big business, many of which he unveiled as part of the plan to pay off the proposed infrastructure spending of more than $ 2 trillion from its administration. On the corporate side, these tax changes include a minimum tax of 15% on accounting income for the largest corporations, raising the corporate tax rate from 21% to 28% and doubling the taxes on the profits of foreign affiliates. of American companies.

To monitor

Bank of America analysts suggest that the success of a global minimum tax will depend on the effectiveness of incentives for low-tax countries to participate as well as closing tax loopholes for countries that opt ​​out.

Further reading

IRS Commissioner Says Tax Gap Could Exceed $ 1 Trillion Per Year (TBEN)

98% of CEOs say Biden’s corporate tax rate hike will hurt their businesses, poll finds (TBEN)

Biden says he’s ‘ready to negotiate’ 28% corporate tax hike (TBEN)

Who will be the biggest losers from Biden’s tax hikes? (TBEN)

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