US floats 15% global minimum tax on corporate profits

The proposal comes before a June meeting of G7 finance chiefs in London

US Treasury Secretary Janet Yellen says global minimum corporate tax rate is needed. AP

The US called for a global minimum corporate tax of at least 15 per cent, less than the 21 per cent rate it has proposed for the overseas earnings of US businesses - a level that some nations had argued was excessive.

The contrast between the new proposal, released by the Treasury Department on Thursday, and the higher rate that the Joe Biden administration is seeking to be applied to American companies underscores the difficulty of international talks being led by the Organisation for Economic Co-operation and Development (OECD).

Countries including Ireland have used low business taxes as a key economic development strategy. Negotiators are aiming for a deal this summer.

The US Treasury Secretary Janet Yellen has argued for an ambitious effort to end a global “race to the bottom” on company taxes.

Such competition has eroded the revenues of governments that have run up record debt levels amid the Covid-19 crisis. Her approach marked a turnaround from the Donald Trump administration, and has energised the talks involving approximately 140 nations on the issue.

“It is imperative to work multilaterally to end the pressures of corporate tax competition and corporate tax base erosion,” the Treasury Department said in a statement on Thursday.

“Treasury underscored that 15 per cent is a floor and that discussions should continue to be ambitious and push that rate higher.”

The offer, which came in talks held this week, moves the US closer to the 12.5 per cent rate that had been discussed at the OECD before the US re-engaged in the negotiations following Mr Biden’s election as president.

Japanese Finance Minister Taro Aso, speaking to reporters in Tokyo, said the US proposal represents progress, although more discussion is needed. He said he expects movement towards global tax agreements, including a digital tax, at the G20’s summer meeting, but final deals may not happen until later in the year.

Some lower-tax countries - such as Ireland, with a 12.5 per cent corporate rate - had been sceptical of the 21 per cent rate the US administration has urged Congress to enact for global income earned by the American companies.

British officials said the 21 per cent rate was too high for the long term - even though the UK intends to raise its corporation tax to 25 per cent in 2023 to replenish public finances after the pandemic.

Thursday’s proposal comes before a June meeting of Group of Seven (G7) finance chiefs in London that offer a forum for key industrial nations to forge a consensus.

The US administration is also hoping to secure a broad OECD deal on a global minimum rate before Democrats take up the push in Congress to increase US corporate taxes. The White House has proposed a 28 per cent domestic corporate tax rate, up from 21 per cent, to help pay for Mr Biden’s $4 trillion in longer-term economic programmes.

Republicans have opposed both the domestic and global tax efforts by the administration. Key moderate Democratic senator Joe Manchin has called for a smaller corporate tax hike.