After the recent proceedings at the G7 Summit in the UK earlier this month, the ongoing push from the U.S. government and Biden administration to introduce a global corporate tax has proven to be somewhat successful. An agreed-on 15 percent tax floor for major multinational corporations has seen support from some leaders, while others are sharing their doubts.
Developed nations have for years been battling to find new ways to tax large corporations and companies that conduct business via an array of jurisdictions. The new 15 percent tax floor would also mean that developing nations in Africa and South America would have the opportunity to implement new strategies to curb companies from paying low-income and corporate taxes.
The focus in these recent proceedings has largely placed the EU and the U.S. under a microscopic view. While some European nations such as Ireland, Hungary, Cyprus, Netherlands, and Luxembourg operate with some of the lowest corporate taxes, the push for an additional review of the agenda has already been brought forth by some finance ministers.
Back in the United States, President Biden has made it clear that new tax reforms and a serious tax hike for corporations and personal income tax will be in the works in the coming years of his presidency. Senate Minority Leader Mitch McConnell, a raving Republican, and House Minority Leader Kevin McCarthy have already shared grim opinions regarding Biden’s new tax reforms.
Corporate taxes in the European Union
At the beginning of June, the EU government reached a consensus on new rules and regulations regarding multinational corporations and large domestic companies. This will entail these companies to disclose information regarding revenue and taxes paid in any of the 27 EU member states. Even more, these new regulations will also push companies to reveal taxes paid in countries that are considered tax-havens by the EU.
Additional laws and reforms would make transparency more commonplace in the EU, but some countries are feeling that current tax rates within their borders are helping create jobs, and bring in more cash to help recover from the pandemic. The EU Tax Observatory, a research group funded by the EU, claimed that the bloc would obtain an additional $122 billion more in corporate taxes if a global tax rate of 21 percent is introduced. The agreed 15 percent would cut revenues by a factor of two, and some EU member states aren’t looking to negotiate new deals.
Currently, Ireland (12.5 percent), Cyprus (12.5 percent), and Hungary (9 percent) have the lowest corporate tax rates according to 2020 data.
Corporate taxes in the U.S.
In 2018, then President Trump introduced the Tax Cuts and Jobs Act, bringing down corporate tax from 35 percent to 21 percent. Now President Biden is challenging this, bringing about major changes for both domestic and multinational corporations conducting business abroad and within the United States. Biden is looking to increase corporate taxes from 21 percent to 28 percent, and increase the minimum corporate tax rate to 21 percent for all U.S. corporations.
Additional reforms and changes in this new legislation will also look at how the U.S. government is dealing with multinational companies operating in offshore tax-havens, to help enforce tighter restrictions around deductions, tax on corporate “book income”, and removing current loopholes in the system.
What Biden is setting out to do, is ramp up the taxes the government is owned by major corporations and put a curb on multinational companies doing business in offshore tax-havens. Although these tax havens may never go away, as each country can govern on its own jurisdiction; pushing for a fairer playing field, can perhaps help narrow the gap and distribution of wealth in the U.S. These collected taxes will help fund the Infrastructure Plan Biden has running on his agenda, looking to improve and rebuild American infrastructure, while also creating more jobs.
A global corporate tax, even within the borders of the U.S. and member states in the EU would still take a few months to finally play out. Small business owners and entrepreneurs looking to start a new LLC or startup company are holding out hope that government leaders will finally look to help the smaller players – holding major corporations and multinational companies accountable for their ability to jump tax hikes, and domestic jurisdictions.
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