- Balázs Farkas
Biden’s New Plan to Control Multinational Companies
Looking for a way to recuperate lost taxes and creating a fairer playing field, President Biden has endorsed the idea of a global minimum corporate tax rate, but he is sure to face opposition from many countries who operate as tax havens for large companies.
A new tax method has been prepared to stop multinational companies from profit shifting, and it seems like a real solution to evade tax avoidance and to eliminate tax havens. The plan would have several positive effects on the US economy but might predict the coming of a new era of protectionism.
The concept of a global minimum corporate tax rate is to make a universal tax rate for corporations, irrespective of where they are based. It is an answer to a tendency caused by smaller countries alluring multinational firms with low tax rates. As a result, the 55 largest companies of the US did not pay any federal taxes last year, according to NBC News. They are registered in countries where the corporate tax rate is very low or even quite close to zero, whilst it is 21% in the US.
The main aim of the new tax system is to stop profit shifting, force multinational firms to pay a fair amount of taxes and make them interested in being headquartered in the US, not fleeing away from high taxes. Besides gaining a huge income from multinational corporation, many new jobs would be created in the US in order to shake up the economy. Also, this new tax scheme would have an important role in keeping innovative start-ups in the country. The plan also contains the rise of the corporate tax rate to 28%, aiming to provide the financial background for a $2tn infrastructure program. Furthermore, big tech firms are criticised by consumers for not paying enough taxes, and gaining too much profit. Imposing this tax could lead to a fairer situation.
Of course, this idea will strongly affect big tech companies like Google and Facebook, whose only reason for being headquartered in Ireland is to have low tax rates. Higher tax rates will negatively influence the firm's efficiency as well. In addition, countries with middle or small size economies are against this plan. Attracting big firms is the base of their economy, without them their competitiveness would be decreased. To accept the plan, a global cooperation is needed, which will not be simple to reach. Therefore, tough negotiations are forecasted between the EU member states. The global minimum corporate tax rate is highly supported by Germany, Italy, and France; whilst tax havens like the Netherlands, Ireland and Hungary strongly oppose it.
In conclusion, the global minimum corporate tax rate is an effective way of controlling multinational companies and bringing economic benefits to powerful countries. However, the plan’s success relies on every country, many of whom have to be convinced to accept it. Ignoring smaller countries’ opinions could cause them serious economic problems, and would show a lack of responsibility from the US. Bringing agreement between US citizens and multinational corporations for popularity, ensuring economic advantages for the US, and breaking globalization at the same time is a hard task, but the global minimum corporate tax rate looks like a realistic solution.