Global minimum corporate tax: US gets support from France, Germany on a 21% tax plan

The US proposal envisages a 21% minimum corporate tax rate has got backing from France and Germany. This move will add momentum to efforts to overhaul global rules despite reluctance from some smaller European countries.

The US has proposed that countries should be able to tax more corporate profits based on revenues within their borders in a bid to reach a global taxation deal, according to two people familiar with the offer.

United States Secretary of the Treasury Janet Yellen had thrown the weight of the U.S. government behind a push for a global corporate minimum tax rate, possibly carving a path to a long-sought deal updating international tax rules for the first time in a generation.

“If the Biden administration proposes a 21% rate and there is consensus, it would be acceptable for us,” French Finance Minister Bruno Le Maire said.

WHY A GLOBAL MINIMUM TAX?

Major economies are aiming to discourage multinational companies from shifting profits - and tax revenues - to low-tax countries regardless of where their sales are made. Increasingly, income from intangible sources such as drug patents, software and royalties on intellectual property has migrated to these jurisdictions, allowing companies to avoid paying higher taxes in their traditional home countries.

With a broadly agreed global minimum tax, the Biden administration hopes to reduce such tax base erosion without putting American firms at a financial disadvantage, allowing them to compete on innovation, infrastructure and other attributes.

The Trump administration took a first stab at capturing revenues lost to tax havens with a U.S. corporate offshore minimum tax in 2017. The "Global Intangible Low-Taxed Income," or GILTI, the tax rate was only 10.5% - half the domestic corporate tax rate.

HOW WOULD A GLOBAL MINIMUM TAX WORK?

The global minimum tax rate would apply to companies' overseas profits. Therefore, if countries agree on a global minimum, governments could still set whatever local corporate tax rate they want.

But if companies pay lower rates in a particular country, their home governments could "top-up" their taxes to the agreed minimum rate, eliminating the advantage of shifting profits to a tax haven.

The Biden administration has said it wants to deny exemptions for taxes paid to countries that don't agree to a minimum rate.

The OECD said last month that governments broadly agreed already on the basic design of the minimum tax although the rate remains to be agreed upon. International tax experts say that is the thorniest issue.

Other items still to be negotiated include whether industries like investment funds and real estate investment trusts should be covered, when to apply the new rate and ensuring it is compatible with the 2017 U.S. tax reforms aimed at deterring tax-base erosion.

(With inputs from agencies)