International corporate tax rules were established a century ago with the good intention of protecting multinational companies against scams by unscrupulous countries and double taxation.
But in an age of globalization and increasingly powerful businesses, these rules no longer work. Instead, corporate goliaths pit countries against each other to locate where there is little to no corporate taxation and hide money in offshore accounts under questionable business structures.
US Treasury Secretary Janet Yellen aptly describes the result as “a 30-year race to the bottom on corporate tax rates.”
That’s why President Joe Biden has pushed for a global deal for a corporate tax of at least 15% to crack down on corporate tax abuse globally.
It found broad support for the idea, even from our main competitor countries. Last week, 130 countries signed up to the global master plan, including China, Russia and India.
That’s good news, but Biden’s ambitious plan has a long, difficult road ahead.
There are a lot of flaws to be distinguished in the original proposal, including whether it unfairly provides exemptions for certain industries. One also wonders if all the countries that have signed will have the political will to approve and implement a final plan.
Still, the fact that Biden’s plan has reached that initial level of support is impressive.
The concept of a global corporate tax has garnered such support from such a diverse group of countries, as they understand that the balance of power has shifted from nations to multinational corporations playing the nation. against each other. It denied that public treasuries around the world needed tax revenue.
The biggest multinational companies have paid too little tax for too long. The global corporate tax rate will not make this disparity go away, but it would go a long way to improving things.