U.S. Treasury Secretary Janet Yellen argued this week for the imposition of a global minimum corporate tax rate.
Her comments were set in the context of increasing U.S. corporate taxes to fund Joe Biden’s USD $2 trillion+ infrastructure plan.
Why do we care?
The argument goes that by convincing other countries to impose a global minimum tax would greatly reduce the likelihood of U.S. companies relocating offshore, as America is set to potentially increase the corporate rate from 21% to 28%. Ms. Yellen’s suggestion – if adopted – would effectively neutralise the beggar-thy-neighbour policy of nations attempting to create comparative economic advantage through tax regimes.
A tough sell, no doubt. Outside of the G7, where the basic corporate tax rate is around 24%, countries around the world will be generally hesitant to negatively change their respective tax regimes to effectively prop up the insatiable revenue appetite of the world’s biggest economies. Expanding such a minimum tax baseline to the G20 would allow the U.S. and Europe to argue that all smaller jurisdictions with more favourable tax regimes are in effect acting in an inappropriate and predatory fashion.
By trying to convince other countries to impose a global minimum tax, Ms. Yellen is acknowledging the risks to the American economy if it acts alone in raising corporate rates. It will be quite interesting indeed if Ms. Yellen will be successful in terms of convincing the world that America should now receive economic help in the form of a global tax baseline.