US Treasury chief Janet Yellen is calling for a global corporate tax approach to stop multinationals from profit shifting revenue to offshore locations to reduce tax liability
Yellen is calling for the G20 to take action to stop profit offshoring particularly by the largest IT giants like Facebook and Google which locate themselves in low tax jurisdictions such as Ireland, where the corporate tax rate is 12.5%.
Yellen, US secretary of the Treasury, told delegates at an event organised by the Chicago Council on Global Affairs: ‘There has been a 30-year race to the bottom on global corporate tax rates. Competitiveness is about more than how US-headquartered companies fare against other companies in global merger and acquisition bids.
‘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.’
As part of US president Joe Biden’s covid recovery programme, the US federal corporate tax rate is set to be increased from 21% to 28%, although this measure still has to be approved by US lawmakers.
The speech marks a change in US approach to global collaboration on international tax.
Yellen added: ‘President Biden’s proposals call for bold domestic action, including to raise the US minimum tax rate, and renewed international engagement, recognising that it is important to work with other countries to end the pressures of tax competition and corporate tax base erosion.
‘We are working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom. Together we can use a global minimum tax to make sure the global economy thrives based on a more level playing field on the taxation of multinational corporations.’
The OECD is currently reviewing the outcome of a consultation on plans to introduce a new set of cross-border tax rules, particularly focused on the introduction of a global approach to tax for digital businesses.
Chartered Institute of Taxation’s director of public policy John Cullinane, said: ‘US Treasury Secretary Yellen’s call for a minimum level of tax to be imposed on multinationals neatly brings together one strand of the Biden administration’s domestic tax policy with one of the ‘pillars’ of the current OECD proposals to reform international corporate tax.
‘There is also a suggestion that the US may have issues in the future with countries that allow effective corporate tax rates to fall too low.’
Yellen also confirmed that the IMF has set up a taskforce on climate change to improve reporting and transparency for investors and stakeholders, with the US taking a lead role.