Hello from Washington, where businesses and lawmakers are still digesting Joe Biden’s $2tn infrastructure proposals, a public investment programme that the US president likened in scale to the space race of the 1960s. Alongside the spending plans were corporate tax increases, set out over 15 years.
Our main story today looks at what we know about the tax plans so far, notably those that would affect companies globally. We’re expecting further details later today.
Our Person in the News is Jeff Bezos, Amazon’s chief executive, while Charted Waters examines the possibility of a united Ireland post-Brexit.
The Financial Times has also published a second batch of stories in its special report on rethinking supply chains.
Biden’s tax push: what we know so far
The Biden administration has made much of its ambition to tame the excesses of globalisation while at the same time returning the US to the world stage. It’s railed against American jobs and manufacturing capabilities being sent overseas, where labour costs are cheaper. And following last week’s big unveiling of the president’s infrastructure bill, it has turned its attention to tax.
Tax, like jobs, must not be offshored, says Washington. US Treasury secretary Janet Yellen declared on Monday that she would push for a global minimum corporate tax. This follows the announcement of the new administration’s plans to raise US corporate taxes — plans which have proven controversial. But, if protectionist America wants to reshape not only its own, but international tax policy in this manner, it desperately needs the help of other countries, or at least the majority of G20 countries.
The OECD has been talking about corporate tax for quite some time, of course. In fact, lots of countries have been talking about it for years. The problem has been that by using clever accounting and legal breaks, big multinational corporations have consistently found ways to lower their tax bills, sometimes magicking them out of existence by diverting their profits to low-tax jurisdictions such as Ireland, the Netherlands, or the Cayman Islands to name but three. A report this week from the progressive think-tank the Institute on Taxation and Economic Policy found that 55 big corporations in the US in the past fiscal year, despite reporting combined profits of $40bn. Which is pretty aggressive avoidance.
So what is the US going to do, exactly?
The first thing to note is that the US’s tax rules are already quite unusual. It’s the only large economy that has what tax analysts refer to as a “worldwide” tax system, as opposed to a territorial system. That in itself is a shorthand way of saying that the US already goes further than most countries in its efforts to tax the overseas income of its multinationals.
There are some other changes, but they’re more marginal than the GILTI reform and the US domestic rate increase — and . . . you get the picture.
US businesses are by and large pretty enraged by the plans. The Business Roundtable, a lobby group, has called for the US to secure an agreement at the OECD that would raise the tax burden of their foreign rivals “before unilaterally subjecting US companies to a competitive disadvantage”. Other lobbyists have criticised the Biden team for being too academic and not understanding the real world complications and administrative burdens of a complicated tax regime. Trade associations and lobbyists have lined up to warn that the tax rises could cost jobs.
Others argue that US corporations do not, in fact, pay much tax. Analysis by the Peter G Peterson Foundation finds that US corporate tax income is the at 1 per cent of gross domestic product, compared with about 2 per cent in France and Germany and 4 per cent in Canada and Japan.
While Yellen’s calls for a higher global rate would deflect the competitive disadvantage argument somewhat, when it comes to the global rate, it is not clear how high a minimum rate could be. The OECD discussions earlier last year centred around a 12.5 per cent minimum corporate tax, (although the figure has not been agreed), whereas the US is now pushing for a much higher baseline. Other countries will be waiting to see what Biden can pass through the US Congress, a process likely to take months. While there is widespread support for the plans from across the Democratic caucus, there are bound to be amendments.
The big question concerns what the US can do to persuade other countries to adjust their tax policies. The big EU powers, Germany and France, have already backed Yellen, albeit in slightly vague terms. The US also has leverage in terms of its capacity to make or break the debate over the introduction of a global digital tax, which is also under way at the OECD. Tax, however, is ultimately a matter of national sovereignty — earlier efforts by big EU member states to force smaller jurisdictions in the bloc to raise their tax burdens have not done much good. For instance, the fight with Ireland over Apple’s tax bill has ended up not going very well for Brussels after it accused Dublin of offering illegal state aid in the courts. It’s unclear that the US, approaching this through the OECD and by ramping up its own taxes, will be able to get much done either.
The fourth part of the FT’s series on the possibility of a break-up of the UK focuses on Northern Ireland. The piece delves into whether the likelihood of unification between Northern Ireland and the Republic of Ireland has risen post-Brexit. What people think, it turns out, largely depends on where their political allegiances lie:
Person in the news
But the Wall Street Journal has reported that wrote a memo supporting Biden’s infrastructure plans, which include the corporation tax reforms. “We recognize this investment will require concessions from all sides — both on the specifics of what’s included as well as how it gets paid for,” Bezos wrote.
- Helen Thomas tells us to forget about equivalence. The City of London needs a post-Brexit plan. Read more
Helen Thomas tells us to forget about equivalence. The City of London needs a post-Brexit plan. Read more
China’s central bank has revealed it is co-operating with the EU to converge green investment taxonomies across the two markets, aiming to implement a jointly recognised classification system for businesses’ environmental credentials by the end of this year.Read more
Shipping groups are preparing for more “black swan” events after the Suez Canal blockage. Read more
The best trade stories from Nikkei Asia
- In the year since US sanctions hit Huawei and shifted the global tech supply chain, the semiconductor boom has led to surging property prices in Hsinchu, home to Taiwan Semiconductor Manufacturing Co.
In the year since US sanctions hit Huawei and shifted the global tech supply chain, the semiconductor boom has led to surging property prices in Hsinchu, home to Taiwan Semiconductor Manufacturing Co.
Samsung stands to be a winner in the key US market after LG Electronics’ decision to end its smartphone business.