LONDON (Reuters Breakingviews) – French Finance Minister Bruno Le Maire is seeking help from US President-elect Joe Biden on corporate tax reform. Unfortunately, he does it wrong.
The Mayor is hoping Biden will unblock global negotiations that have been stalled since June. France, Britain, Spain and Italy would like digital giants such as Amazon.com and parent company Google Alphabet to pay taxes in part based on where sales are made, rather only from the place where the profits are declared. The current regime allows tech companies to shift profits generated, for example, in France, to low-tax countries like Ireland and Luxembourg.
The new approach will be as difficult for Biden to accept as it is for his predecessors. Barack Obama’s administration, for example, helped undo an earlier effort to update corporate tax rules in the digital age. The problem is, France and others are looking for money that might eventually find its way back into US coffers, such as when tech companies move money stored in Ireland to US shores. It won’t help that France and Britain introduce emergency digital taxes, mainly hitting American businesses, in case negotiations led by the Organization for Economic Co-operation and Development fail.
There is a simpler option. Rather than focusing on technology, governments could introduce a minimum global corporate tax rate. It would suit everyone except tax havens. America already has a similar measure in the so-called GILTI provision of its tax laws. The Mayor, for example, could then take the difference between the agreed threshold and what French companies actually pay on profits declared in low-tax countries. This would end the incentive to shift profits.
OECD analysis suggests introducing a minimum tax rate would raise up to $ 70 billion outside the United States, with high-income countries like France doing particularly well . In comparison, the changes that European countries want to make to the taxation of digital services would bring in a maximum of $ 12 billion worldwide.
It is possible to introduce a minimum tax without also changing the rules for digital businesses. Biden could probably live with that. France and other European countries, however, have insisted on linking the two ideas – not least because they have made a political fuss over taxing big techs. The risk is that their dreams of digital wealth sabotage the chances of a mutually beneficial compromise, at a time when governments around the world are looking for revenues to fill gaping budget deficits.
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