US Treasury Secretary Janet Yellen has argued in favour of a global minimum corporate tax rate in a speech to the Chicago Council on Global Affairs on Monday.
One week after the Biden administration released plans to raise US tax rates for businesses, Yellen’s remarks broadly called for more international cooperation and represented a volte-face from America’s isolationism during the past four years.
The treasury secretary stressed both the benefits and the challenges of an interconnected world, stating that it had caused a 30-year race to the bottom on corporate tax rates.
“Competitiveness is about more than how US-headquartered companies fare against other companies in global merger and acquisition bids,” Yellen said. “It is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government.”
She said President Joe Biden’s proposals announced last week included raising the US minimum tax rate, and renewed international engagement, “recognising that it is important to work with other countries to end the pressures of tax competition and corporate tax base erosion”.
Yellen added that the US is working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom.
“Together we can use a global minimum tax to make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations, and spurs innovation, growth, and prosperity,” she said.
Last year the 137 member countries of the OECD/G20 Inclusive Framework on BEPS were unable to agree on new global rules for corporate taxation.
However, members agreed on the basis for future tax reform around two pillars. While Pillar I seeks to establish new rules on where tax should be paid and a new way of sharing taxing rights between countries, the second pillar aims to establish a minimum level of tax that multinationals must pay globally.
The negotiations reached an impasse because the US government felt that new rules around Pillar 1 would predominantly target US tech companies, but there was more agreement to establish minimum corporate tax rates.
The Inclusive Framework has said it aims to develop model draft legislation for global tax reform, guidelines, and international rules and processes by mid-2021.