President Biden proposes global minimum corporation tax rateby
President Biden appears to have grasped the nettle and decided that it is time for global giants to pay more tax. Philip Fisher proposals that could raise £300bn each year in corporation tax.
Those of us who are steeped in the glories of taxation systems struggle to understand why the world at large does not get excited about such an important topic.
It is therefore pleasing to see that not only the OECD but also President Biden and other leading politicians from around the world finally seem willing to grasp a very prickly nettle.
As this column has highlighted over a period of many years, tax avoidance by the richest companies around the globe is out of control.
While politely paying lip service to their obligations to pay taxes that they believe are due, the big guns in the tech sector and beyond seem to have a knack for reducing their liabilities in percentage terms beneath those of all but the very poorest in society.
Even when countries such as France and United Kingdom choose to implement a digital services tax these companies, which sometimes give the impression of believing that they are above the law, and enlist the help of friendly politicians such as former president Trump to apply vindictive tariffs against their challengers.
Biden's global corporation tax plans
It therefore comes as a breath of fresh air to learn that Trump’s successor is now signing up to a two-pronged plan that seeks to put the top 100 companies in their place.
If news reports are to be believed, this could benefit global economies by over £300bn every year. While that might not quite pay for anti-pandemic measures, it could certainly feed a lot of hungry children, support education and fund significant health benefits.
The first proposal is that there should be a global minimum rate of taxes on company profits. Coincidentally, the figure chosen of 21% just happens to be the current rate of corporation tax in the United States.
That would have rung alarm bells in the United Kingdom, where the rate is 19% except that in last month’s Budget speech, Rishi Sunak has introduced a slow increase to 25%.
The Irish will certainly be concerned, with the current rate of 12.5%, while many British dependencies have made their billions by allowing corporations to operate without any tax charge beyond a nominal flat sum.
Biden's tax hike targets top 100
The second part of the proposition is reputedly going to be restricted to only the largest 100 corporations in the world. Given that they include the biggest tax avoiders, it is obviously been determined that this will suffice to remedy the worst excesses.
For decades, experts have been suggesting that the only way to redress the balance is to charge taxes on multinationals based on sales, rather than nominal profits, which have conveniently been shifted to low tax jurisdictions using strategies thought up and implemented by many of our peers worldwide.
Given the influence of those that will be victims of these proposals, there could be a rocky ride before the OECD manages to implement them. But it is hard to imagine that the average voter would object to anything of this kind, which should stiffen the resolve of the legislators.
Effect on global accountancy firms
In addition to hitting the profitability of the global corporate giants, it will also have consequences for accountants in this country and elsewhere.
There seems little doubt that every member of the Big Four and many others have benefited greatly from the tax advice required to rearrange financial affairs in such a way that taxes shifted to locations such as the BVI or the Cayman Islands.
If these dependencies were forced to charge tax at 21%, the avoidance industries which have always been based on dubious moral grounds would presumably disappear overnight.
While that could be disastrous for tax advisers, there can be little doubt that when the likes of Amazon, Google and Starbucks suddenly discover that their liabilities have gone up by a multiple of 10 overnight, they will be beating down the doors of anyone who might be able to help them to mitigate the position - so all will not be lost.