President Joe Biden said Wednesday that he will push for the adoption of a global minimum corporate tax rate to reduce opportunities for tax-rate arbitrage by American corporations that reduce their U.S. tax burden by shifting profits to low-rate tax havens.
“I’ve also proposed a global minimum tax, which is being proposed around the world for U.S. corporations, of 21 percent,” Biden said at a White House press briefing.
“It means that companies aren’t going to be able to hide their income in places like the Cayman Islands and Bermuda, in tax havens,” the president added.
It comes after Treasury Secretary Janet Yellen on Monday urged the adoption of such a tax, which would rely on negotiating a 21 percent global minimum corporate tax rate with major economies.
Citing a “30-year race to the bottom” in which countries have slashed corporate tax rates in an effort to attract multinational businesses, Yellen said the Biden administration would work with other advanced economies in the Group of 20 (G-20) to set a minimum.
“It is important to work with other countries to end the pressures of tax competition and corporate tax base erosion,” Yellen said.
Sen. Pat Toomey (R-Penn.) said that Yellen’s proposal of a global minimum corporate tax rate was unlikely to make much progress overseas. He also said Republicans should reverse any corporate tax hike if they regain a congressional majority in upcoming elections.
“Spoiler alert: 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,” Toomey said.
Biden faces stiff opposition from Republicans, major corporations, and even some in his own Democratic Party to elements of his tax proposal.
While negotiations on an international deal on minimum corporate tax rates have run on for years, the drive gathered steam on April 7 after G-20 finance chiefs met virtually on Wednesday and pledged to reach a consensus on new rules by mid-year as part of a broader overhaul of the way international businesses are taxed.
The Biden administration is seeking international cooperation on the global corporate minimum tax rate in an effort to at least partially offset any disadvantages that might arise from the administration’s proposal to raise the U.S. corporate tax rate to 28 percent. The move is seen as a key to funding the Biden administration’s $2.3 trillion infrastructure proposal.
On Monday, Biden said he is “not at all” concerned that a higher corporate tax rate would cause some U.S. companies to relocate overseas, though the proposed global minimum corporate tax is intended to prevent that from happening.
Biden has sharply criticized large companies for paying “not a penny” in corporate income taxes in recent years. Dozens of big American corporations use complex tax strategies to reduce their federal tax liabilities to zero.
With a view to stopping the shift of profits to tax havens, the plan would also replace a separate 10 percent minimum tax, called the Foreign Derived Intangible Income (FDII) regime, with a new system, also at 21 percent.
The plan would also repeal the Base Erosion and Anti-Abuse Tax (BEAT) and replace it with a new framework called SHIELD (Stopping Harmful Inversions and Ending Low-tax Developments), in a further bid to counter the profit shifting of foreign-headquartered multinational companies.
While President Donald Trump’s 2017 tax overhaul did have measures to increase the U.S. tax take from companies’ overseas operations, Biden’s plan takes a tougher approach.
“This is aiming to prevent gaming the system entirely,” said Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy, in remarks to Bloomberg. “The party does seem like it’s over.”
