Due to differences in the ruling Democratic Party, the issue of raising taxes on corporate and rich people in the US hangs, but at the request of America, the G20 countries started discussing the issue of fixing the minimum rate of global minimum direct taxes is. This week, US Treasury Secretary (Finance Minister) Janet Yellen appealed to fix such a rate. According to the latest news, France and Germany have supported the US proposal. He hoped that the new minimum rate could be implemented from summer this year.
In the US, President Joe Biden has proposed increasing the corporate tax from 21 percent to 28 percent. But the proposal seems unlikely to pass in the Senate for the time being because of Democratic Senator Joe Menchin taking an opposing stance in the matter. The 100-member Senate has 50-50 members from both Democratic and Republican parties. The Republican Party is strongly opposed to raising taxes. In such a situation, such a proposal is bound to fall if one of the Democrats senators voted against it.
On Wednesday, the Biden administration released details of its tax proposal. Accordingly, the corporate tax will be increased to 28 per cent. In addition, a minimum of 15% tax will be levied on companies which show huge profits, but whose taxable income is negligible. The Biden administration has also offered to end subsidies for fossil (fossil) fuels and offer them to the clean energy sector. Also, the administration has announced measures to strictly enforce the tax rules.
On the proposal to increase corporate tax in the US, Germany’s Foreign Minister Olaf Scholze said that he is confident that this corporate tax initiative will put an end to the ongoing tax reduction competition in the world. French Foreign Minister Bruno Le Maier welcomed the US proposal, saying – “A global agreement about international tax rules is now within our reach.” We must take advantage of this historic opportunity. ‘
The Finance Ministers of the G-20 countries had a virtual meeting on Wednesday. It said that the G-20 countries are discussing corporate tax reform under the Organization of Economic and Economic Cooperation and Development (OECTD). Their effort is to reach an agreement in this regard by the meeting of the Finance Ministers of the G-20 countries to be held next July.
According to the information received, work has started on two points. The first challenge is to form a consensus about digital businesses and large companies that do business outside the borders of countries. Regarding these, it is decided that in which country these companies should pay tax. These companies choose to pay tax to countries where tax rates are low. That is, they make their headquarters there. Now the proposal is that these companies be forced to pay tax where their customers (customers) are, even if they are headquartered somewhere. Attempts to build a global consensus in this matter were made earlier, but did not succeed. Dissatisfied with this, Britain and France have imposed digital service tax on themselves.
The second point is to set the minimum corporate tax rate globally. In this case, consensus is a bigger challenge, as many countries like Ireland and Netherlands have lowered their tax rates to attract multinational investment. In his first reaction after the US proposal, Ireland’s Finance Minister, Pashel Donohe, objected to this. He said that fixing the global minimum rate of tax would have a bad effect on countries with small and medium-sized economies. The corporate tax rate in Ireland is just 12.5 per cent, the lowest in the world.
In addition, in many small countries such as the Cayman Islands, tax rates are either very low or there is zero tax. Therefore rich people use these countries as tax havens. How these countries will be persuaded to impose minimum tax, this is the biggest challenge in the path of the American proposal.