The Biden administration proposed a global tax on multinational corporations of at least 15 percent in the latest round of international tax negotiations, Treasury Department officials said on Thursday, a lower-than-expected offer as the U.S. looks to reach a deal with countries that fear hiking their rates will deter investment.
Treasury has been holding meetings this week with a panel of negotiators from 24 countries about the so-called global minimum tax, which would apply to global companies regardless of where they locate their headquarters. The Biden administration hopes to reach an agreement in principle with other countries this summer and is counting on the deal to help sell its plan to raise the corporate tax rate in the United States to 28 percent from 21 percent.
Treasury officials said their offer was met enthusiastically and characterized it as a pivotal moment in the negotiations, which have dragged on for more than two years. The negotiations over the global minimum tax are part of a broader global fight over how to tax technology companies and come as the Biden administration is trying to fix provisions in the tax code that it says incentivizes moving jobs overseas.
As part of its American Jobs Plan, the Biden administration called for doubling the global intangible low-taxed income (or GILTI) tax to 21 percent, which would narrow the gap between what companies pay on overseas profits and what they pay on earned income in the United States. Under the plan, the tax would be calculated on a per-country basis, which would have the effect of subjecting more income earned overseas to the tax than under the current system.
If the 15 percent global minimum tax rate is adopted, it would still leave a gap between that rate and the Biden administration’s proposed U.S. domestic rate. Treasury officials have argued that the new gap would be smaller than the current gap and therefore would not diminish the competitiveness of American companies.
Part of the Biden administration’s ability to sell its plan, however, hinges on whether it can reach a deal with other countries on the global minimum tax so that American companies are not at a competitive disadvantage.
The finance ministers from France and Germany indicated last month that they were willing to back a 21 percent global minimum tax rate. But countries will have to change their laws to formally make the agreement happen and enforcement of the deal will be complicated. Ireland, which is not a member of the steering committee undertaking the negotiations through the Organization for Economic Cooperation and Development, has a 12.5 percent corporate tax rate and has expressed reservations about such an agreement.
Treasury officials said that they never insisted on the 21 percent rate. However, they view the 15 percent level as a floor and will continue to push for a higher rate. They said they believed that other countries were receptive to the idea of adopting higher rate depending on the fate of the changes to the American tax system that are under consideration.
Treasury Secretary Janet L. Yellen has warned that a global “race to the bottom” has been eating away at government revenues, and she has adopted a more collaborative approach to the negotiations than the Trump administration employed.
Ms. Yellen is expected to continue talks about international tax reform with her international counterparts at the Group of 7 finance ministers meeting next month.