“World” editorial. For decades, international competition has revolved around the self-proclaimed iron law, which organizes fierce competition to propose lower corporate tax rates. The profits of multinational corporations, which are liquid and elusive by definition, have sought more and more loose fiscal sky, thus depriving large countries of their valuable budget income and benefiting the confetti countries, which have concentrated 40% of the profits of these big groups.
However, this movement is not inevitable. The new U.S. Treasury Secretary Janet Yellen has just stated that political voluntariness to end this race constitutes a useful paradigm shift that can subvert the current logic of globalization.
At a meeting held in Chicago on April 5.I Yellen said that the United States is ready to reach an agreement with other Group of 20 (G20) countries on minimum corporate tax rates. “In general, we can use the lowest global tax rate to ensure that the global economy thrives in a fairer playing field in the taxation of multinational companies,” She suggested.
The purpose of this is to make any company pay at least 21% tax on its profits no matter where its profits are. The minimum tax rate is calculated on a country/region basis, which will allow G20 members to recover considerable amounts by establishing themselves as the last resort to claim from their respective multinational companies that there may be differences in tax rates from tax havens. In fact, the advantages provided by the latter will become obsolete.
All major economies are interested in ending this stupid competition, the competition of bidders for the lowest tax. The damage caused by the pandemic has forced countries to mobilize their budgetary revenues as much as possible. Therefore, optimizing the company’s tax revenue becomes a lever that cannot be ignored.
The European Union (EU) may be the initiator of this revolution, but it has always run counter to the Maastricht Treaty, which requires member states to agree to a common fiscal policy. The fact that the proposal comes from the United States is an opportunity not to be missed. So far, the European Union and the United States have concentrated half of multinational companies, accounting for 50% of world consumption. The joint adoption of this minimum tax rate system within the G20 framework will generate a powerful impetus that can reverse the logic that has prevailed so far.
The US proposal to decisively restart the work assigned to the OECD by the G20 will face strong lobbying by multinational companies and consulting companies that rely on tax optimization. But the country has no choice. Public opinion urges them to regain control of taxes by ending this dumping, and dumping is their main loser. They did not compete with the lowest bidders, but were interested in participating in a healthier competition, which included attracting capital based on the quality of infrastructure, education, research, and environmental work. The key is to achieve more sustainable globalization for the greatest number of benefits.