The message reinforced President Joe Biden’s recent call for raising the minimum tax already in place on U.S. companies’ profits from their global operations, in addition to increasing the domestic 21 percent corporate tax rate to 28 percent.
Biden would double the current 10.5 percent minimum tax on foreign profits to 21 percent.
Those tax proposals are aimed at funding Biden’s $2 trillion infrastructure plan.
Current talks: Yellen aims to advance Biden’s goals by forging international agreement on a minimum tax, leveraging negotiations through the Organization for Economic Cooperation and Development on altering cross-border tax rules in the increasingly digitized worldwide economy.
The current talks through the OECD, which have been going on for several years, are focused on two proposals: a minimum tax and a formula to determine where multinational companies get taxed and on what income. In total, the twin planks, dubbed Pillars One and Two, are meant to supplant digital services taxes on major U.S. technology companies like Google and Facebook that some nations have already enacted on their own, forgoing international cooperation.
Some tax experts have said the U.S. has good standing to push the global minimum tax because of the minimum tax it implemented on American companies in 2017 for their global intangible low-tax income, known as GILTI.
The digital tax discussions will get high-profile attention again this week on the sidelines of the annual International Monetary Fund-World Bank spring meetings, which Yellen will attend virtually.
Since taking her post in January, Yellen has stressed the importance of multicountry alliances and made the case again in her speech, which she delivered online to the Chicago Council on Global Affairs. Her pitch for finding agreement on taxes and other fiscal policies stands in contrast to former President Donald Trump’s administration, which generally pivoted away from multilateralism in economics and multiple other matters.
Working collaboratively across borders is essential for economic stability, particularly as the world starts recovering from the coronavirus pandemic, Yellen said.
Pitfalls remain: G-20 countries have committed to reaching agreement through the OECD talks by midsummer, though hurdles that predate Yellen still present challenges, even with her more positive tenor around the negotiations.
A Treasury official acknowledged that reaching a “political agreement” by July on a global tax pact is “an ambitious goal” and that some countries may not get on board.
Ultimately, the U.S. might not even get on board, either. Convincing Congress is another test facing Yellen and Biden, given concern that the U.S. could lose tax revenue from an OECD-brokered arrangement that reshapes global taxing fundamentals.
GOP threat: Sen. Pat Toomey (R-Pa.), a member of the tax-writing Finance Committee, said in a statement that “this effort will likely fail and even if there is some sort of agreement, it will be non-binding because it is not a treaty. As soon as Republicans take control of Congress again, they could and should immediately reverse these destructive tax increases.”
He also said Yellen’s call for a global minimum tax was an acknowledgement that the tax increases Biden proposed would “make American workers and businesses less competitive.”
But Yellen said the international effort would turn around what she called “a 30-year race to the bottom” on corporate tax rates.
“Competitiveness is about more than how U.S.-headquartered companies fare against other companies in global merger and acquisition bids,” she said. “It is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government.”
Bid to end ‘gaming the system’: The U.S. hopes to “isolate tax havens and help ensure that corporations can’t engage in gaming the system as they have over recent years,” the other Treasury official told reporters. That includes changing U.S. laws to prevent companies from inverting and claiming tax havens as their headquarters, along with eliminating tax benefits related to offshoring.
“We’re looking to get as comprehensive agreement on corporate taxation as we can,” particularly on a global minimum tax, the official said. “Certainly having the major economies on board will make it much more effective in terms of implementation.”