Joe Biden plans to force big companies to pay taxes where their revenues are earned, not where the profits can be shifted to.
More than a decade has passed without any progress in bringing the global tax system into the modern age. But less than three months after taking office, President Joe Biden has raised hopes of a breakthrough, with proposals that could kill tax havens dead and force multinationals to pay a fairer share of tax.
The change in tone could not be more marked. With last week’s proposal for a global minimum corporate tax rate, Washington has turned away from years of economic orthodoxy that stretched back to the early 1980s and prioritised a neoliberal world vision of free-market competition, government indifference and unblinking advocacy of globalisation.
Under proposals submitted to tax negotiators from 135 countries at the OECD, the Biden plan would force big companies to pay taxes where their revenues are earned, not where the profits can be shifted to. It would also establish a global minimum tax rate, agreed by the world’s biggest economies.
This is a powerful development. For years, big companies have weaved a merry dance through a broken patchwork of international tax rules, advised by an army of lawyers and accountants on where to locate to reduce their bills.
Digital companies are particularly adept at this. They pay lower global effective rates (an average of the tax paid across all jurisdictions a firm operates in) than almost all other businesses. Recent figures show Amazon pays 11.8 percent, Apple 14.4 percent and Facebook 12.2 percent. That's less than half what almost all other companies pay. Biden is right that the time has come to fix this and for all companies to pay their fair share.