How to Tax Multinational Corporations
The finance ministers of the world’s seven richest economies reached a groundbreaking agreement last week, promising a new era in which harmful tax competition is replaced by tax cooperation that benefits all the countries involved.
It would impose a uniform minimum tax of 15 percent on all multinationals, over 90 percent of which are from G7 countries. If these countries impose a uniform tax of 15 percent on their multinationals, no competitive disadvantage can ensue, because all the competitors will be subject to the same rate.
The Biden administration should receive full credit for brokering this deal. It was responsible for breaking through the impasse resulting from the Trump administration’s refusal to engage in any cooperative endeavor on tax policy. Moreover, the deal eliminates the dispute about taxation of the large U.S. tech companies, which will now be subject to the same 15 percent tax as everybody else.
Since the 1960s, there have been numerous attempts to impose taxes on the foreign profits of multinationals. The United States led the effort, followed by the other G7 countries, but all of these endeavors were stymied by the argument that countries could not afford to tax their multinationals unilaterally because they would put them at a competitive disadvantage to multinationals from other rich countries. This argument culminated in the 2017 U.S. tax law that for the first time completely exempted some of the profits of U.S. multinationals from tax because this was how other G7 countries taxed their multinationals.
Read more: https://prospect.org/economy/how-to-tax-multinational-corporations/
(American Prospect)
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