Biden tests tech giants’ support for global tax reform

U.S. President Joe Biden (Bloomberg) — U.S. President Joe Biden **(Bloomberg)**

3 min read . Updated: 09 Apr 2021, 05:25 PM IST ROCHELLE TOPLENSKY, The Wall Street Journal

White House’s proposal clears a path for an overhaul that could cost companies $100 billion

For the world’s largest companies, global tax policy is proving the adage that you should be careful what you wish for.

European countries have pushed for tax reform for years, and the Biden administration’s latest proposal seems to offer what they asked for. U.S. tech giants said they were willing to pay more if it meant predictable bills. Now those claims may finally be put to the test.

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The White House’s $2.3 trillion investment plan relies on 15 years of higher tax revenues underpinned by global rule changes to ensure that firms aren’t handicapped or tempted to flee overseas. The proposal ticks two key reform boxes for Europe’s governments: a global minimum tax to level the playing field and a reallocation of taxation rights so that the biggest companies pay more in countries where they make more revenue, regardless of where their physical assets are.

After years of mostly talk but little action, a tax deal once again seems possible. The U.S. plan differs somewhat from the detailed blueprints put forward by the Organisation for Economic Cooperation and Development last year, but it simplifies the implementation and is likely close enough. The key differences are a higher minimum tax rate than previously discussed and an extension of which companies are covered by the new local taxation rights.

Global tax is a higher priority for President Biden than his predecessors, particularly as it is linked to his infrastructure plan. In the past, OECD digital tax reform progress stalled whenever U.S. engagement waned. Many countries may now compromise to expedite a deal, just in case American priorities change.

Everyone seems eager to put an end to today’s trans-Atlantic tech-tax battle. Frustrated by the slow pace of reform, France, among others, launched digital services taxes in the past years, promising to remove them if Washington negotiated in earnest. Mr. Biden’s proposal may clear a path to a long-term solution.

Both French and German finance ministers expressed optimism this week that a deal could be reached in 2021. Pascal Saint-Amans, who leads the OECD process, said this was a unique opportunity as countries don’t want a tax war and “what the U.S. is proposing now is peace."

Obstacles do remain. Low-tax jurisdictions will fight hard to keep the business they attract as a result of global companies’ profit-shifting tactics, and the 21% minimum tax rate is much higher than previously discussed. Any global agreement would still need to be enacted by national legislators, which could prove tricky in the U.S. and elsewhere.

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Many global companies gained political cover by publicly backing the OECD process, accepting higher taxes in exchange for more predictable bills globally. Investors may now get to see who was bluffing. The OECD estimated that a 12.5% minimum tax would cost companies about $100 billion more annually. Mr. Biden’s minimum tax proposal expects to raise a similar amount globally.

This week, Amazon Chief Executive Jeff Bezos issued a carefully-worded statement backing some tax rises, but business associations are already lobbying hard against any such thing. Stock markets, which reacted enthusiastically to the Trump administration’s profit-boosting tax cuts, have paid little attention to the latest proposals. That may change with a deal, particularly if it makes headway in Congress.

Investors have long been able to comfortably ignore global tax reform. Those days may now be numbered.

This story has been published from a wire agency feed without modifications to the text.

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