This would not have happened in the days of Donald Trump. In the last days of his presidency, parts of Europe were preparing for a transatlantic trade war with the United States over corporate taxes. France, Britain and Italy were about to enforce a “digital services tax” on the technology giants. From France. Other Europeans, including Britain, as well as some non-Europeans, were about to be punished for the same sin.

On January 20, Donald Trump boarded the Air Force 1 presidential plane for the last time and flew to his next home, his golf club in Florida. He did not bequeath his opposition to taxes to come after him. Since his first presidency, Joe Biden has paved the way for ambitious initiatives, whose total price tag was $ 4.5 trillion (4.5 trillion). The income column had to be filled.

The president announced that he wanted to raise the local tax rate on companies from 21% to 28%. The previous rate was set by Trump and Republicans in Congress as early as 2017. Biden has announced that it will apply a minimum of 21% to US companies’ profits from their overseas sales.

On the warning that the heavier tax burden would weaken the competitiveness of American companies, Biden’s Treasury Secretary Janet Yellen responded in early April. It called on the US Trade Partnership to agree on a minimum tax rate for multinational corporations. Yellen.

Such a call did not come from the throat of an American finance minister for many, many years. Political needs dictated tax evasion, or at least an apology for imposing them. Political circumstances have changed and so have needs. Yellen’s remarks were received with special pleasure in Europe, albeit with gnashing of teeth among Republicans in Washington. The latter are historically the Low Tax Party. Although Trump has shunned most of the party’s legacy elements, he has eagerly embraced her resolute opposition to taxes.

“Straighten the pitch”

Over the weekend, the finance ministers of the group of the West’s seven leading industrial powers, the G7, met in London. On Saturday came the announcement, which both its listeners and those who reported it agreed that it was “historic” and “unprecedented”: 15% minimum tax on corporate profits, whatever the geographical basis.

The British Minister of Finance, who chaired the meeting, declared that the key word deriving from this agreement was “fairness”. “We are leveling the field,” he said. “Companies will no longer be able to hide in tax havens.”

The bridesmaid of the agreement, Janet Yellen, declared that “the 30-year-old race to the bottom has ended,” meaning competition between countries to entice corporations to plant their flags through low tax rates, or sometimes without any tax (by the way, two tax evaders are a union The Emirates and Bahrain, but also the Channel Islands and the Isle of Wight associated with the UK).

This competition was attended not only by dwarf countries offering mailboxes, such as Liechtenstein and the Cayman Islands, but also by serious and well-established economies such as Ireland, which is not happy with the new arrangement. She says a rate higher than 12.5% ​​”does not fit with her economic model.” Its finance minister tweeted on Saturday that “any agreement will have to meet the needs of small and large countries, developed as well as developing.” It’s an elegant wording, which falls far short of agreement with a 15% floor.

Germany’s finance minister has declared that the “rules of the game” are changing. This agreement “really changes the world… a turning point in international cooperation… In the last decades we have drifted in the wrong direction, now, finally, we are turning in the right direction”.

The drug: Top-Up

How do you require a tiny island somewhere in the Indian Ocean, or the Pacific, or the Caribbean to follow the new “rules of the game”? How do you prevent a corporation from filing its moles, say, in the Virgin Islands, or in the Seychelles, or in Samoa?

The new agreement does not, of course, propose to send cannon ships there. This is not the 19th century. But it includes machine arrangement, in English, top-up, or completion.

That is, a company that tries to evade taxes by blowing up an anchor on a remote island will find itself paying the difference in its home country, assuming this country is a party to the agreement.

The G7 countries alone, with all their importance, will not suffice. In July, the G20 countries will be asked to join, including China, India, Brazil, Indonesia, South Korea, Russia and Turkey. In all but China, corporate taxes are higher than 15%, so it is difficult to see a basis for opposition. China is of course very exceptional, and in the absence of its cooperation it will be difficult to enforce the minimum tax. But even if the nominal tax level in a row of countries is higher than 15%, sometimes even very high, that does not necessarily mean that they impose this tax on all companies equally. Here, balancing the pitch will require hard work, sometimes also delicate and complex.

“Army of Tax Advisers”

Another important purpose of this agreement is that tax be paid on profits in the country where they were produced. This is especially true of high-tech companies – and it is a clear expression of the new “fairness”, which was praised by the British Minister of Finance. This rule has already been applied unilaterally in the United Kingdom, France and Italy.

“A historic day is this day,” the Fair Tax Foundation tweeted (@FairTaxMark) on Saturday. “Huge sums of money will be raised,” $ 270 billion around the world.

But this agreement does not solve everything. Since it requires local tax payment on companies whose profit margins are at least 10%, guess who the agreement does not apply to: Amazon, of course, whose profit margins are much lower, 4%.

Paul Monahan, who heads the Fair Tax Foundation, told the BBC he was confident that “an army of tax consultants and accountants has already been convened to look for the loopholes, so it all depends on the details. But no one should be mistaken: it’s a big day. For justice seekers in paying taxes. “

“Abandoning corporations”

The main argument in the US in favor of lowering corporate taxes in Trump’s days (to 21%) was that Obama’s taxes (35%) not only drove American corporations abroad (what they then called “reversal,” or inversion), but led them to leave. “Trillions” of cash in foreign banks. According to reductionists, between 2018 and 2020, U.S. companies brought home $ 1.6 trillion “and used them for a host of beneficial economic purposes” (in the words of an editorial in the Wall Street Journal, April 1).

Critics say that the most beneficial economic goal was the repurchase of shares, which increased their value and filled the pockets of their owners. According to the critics, there is no evidence of massive use of the funds returned for investment or the creation of new jobs.

On May 24, the leader of the Republican faction in the Senate Finance Committee wrote to Finance Minister Yellen at length and complained that the Biden administration was abandoning American corporations because only “we impose a global minimum tax.” The man, Sen. Mike Krappo, demanded an answer “by Friday, June four.” He received it on Saturday, June 5th. The U.S. is no longer the “only country” that imposes a global minimum tax. It is doubtful that Republicans will invite the Treasury Secretary to a party to celebrate the historic day.
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