The dream of creating a unified tax code that cuts across a wide range of countries could be close to coming true. This is according to a report in the Financial Times. The FT notes that G7 countries are very close to striking a deal and a uniform tax code could be ready as early as Friday this week. The FT report also notes that the Biden administration has been key in this latest success.
Biden has been pushing G7 countries to reach an agreement over the last few weeks and it seems he's finally got his wish. Despite this, the G7 does not have any power to push such a tax plan through. It will all come down to the OECD. The organization is expected to go through the G7 proposals and decide the way forward.
But the Biden administration maintains that getting the G7 nations to agree on the plan is key. This will give them a strong united front that will make negotiations with the OECD a bit easier. The G7 plan is proposing a series of tax reforms including setting up a global minimum corporate tax rate. This rate will largely target big multinational companies that can operate in various jurisdictions.
The hope is that a unified corporate tax will prevent country-hopping where companies change locations to get favorable tax climates. If indeed the OECD can ratify the G7 agreement, it will be one of the biggest global tax breakthroughs in a century. The timing of this global plan is also perfect for Biden. The US president has been pushing for a major infrastructure plan in the US.
The White House is hoping to use tax increases on corporations to fund the plan. Creating a uniform tax rate among different countries could prevent US companies from leaving the country in favor of nations that have lower rates. This simply means that Biden will be able to fund his ambitious infrastructure plan while keeping major American companies in the US.
The effort by the Biden administration has largely been spearheaded by Janet Yellen, the Treasury secretary and former chair of the Fed. But it shouldn’t come as a surprise. In her first address as treasury secretary, Yellen made it clear that enforcing global minimum corporate tax is essential in harnessing the full power of the global economy.
Yellen also noted that creating these bare minimums will provide a level playing field, something that she believes will push healthy competition and innovation. According to the New York Times, the proposal by the Biden administration will see a minimum tax rate of 15% if indeed it is adopted by the OECD.
The Germans and the French, however, proposed a high rate of 21%. It’s not clear how the G7 countries will arrive at the final figure. But they are all eager to work together to make this happen. The proposals now await a response from the OECD.