The French and German finance ministers recently stated that they support the US government’s proposal to establish a “global minimum corporate tax rate” to prevent multinational companies from using tax havens.
Obviously, the establishment of the world’s lowest corporate tax rate will help reduce the profit transfer of multinational companies and reduce the space for them to deliberately underpay tax by using different tax rates in various countries. However, the establishment of the world’s lowest corporate tax rate does not fully comply with the principle of “profits must be taxed in the place where economic activities occur and where value is created”, and may lead to double or even multiple taxation. Therefore, if the global minimum corporate tax rate is to be truly implemented, many practical difficulties need to be resolved, such as the calculation of the actual effective tax rate, the coordination and compatibility of current policies in different countries, and so on.
U.S. Treasury Secretary Yellen’s call for the establishment of a minimum global corporate tax rate obviously has some calculations to solve some “immediate needs.” Since U.S. President Biden took office, he first allocated 1.9 trillion U.S. dollars to help American families in trouble due to the new crown epidemic, and later proposed to build infrastructure for 2 trillion U.S. dollars. Such a large-scale expansion of fiscal expenditure requires the country to have the ability to increase fiscal revenue. Biden hopes to raise taxes on American companies to support government spending. Biden’s plan met with considerable opposition in Congress. Many opponents believe that in the era of economic globalization, rashly raising corporate tax rates will cause large companies to leave the United States and flee to countries with low tax rates. So, there was Yellen’s plan.
Germany and France are the core members of the European Union, and they actively respond to the call made by the US government and have their own calculations. For many years, American Internet companies have occupied the European market, but they have taken advantage of the different tax rates of EU member states to set their headquarters in countries with low tax rates, such as Ireland. The EU has long hoped to prevent these companies from taking advantage of tax rates in Europe, and has been discussing the introduction of a “digital tax”, but because of the different opinions within the EU, it has always failed to reach an agreement. When the US government proposed to establish the world’s lowest corporate tax rate, countries such as Germany and France certainly did not want to let this opportunity go. They hope to include relevant content related to the “digital tax” in the relevant negotiation and negotiation process in the future. On the one hand, they can use this to impose a “digital tax” on large US technology companies, and on the other hand, they can also prevent member states from taking advantage of it. Low tax rates engage in “unfair” competition.
Setting the world’s lowest corporate tax rate without distinction will bring more difficulties to some developing countries. Developing countries have not many competitive advantages in the international market, and low tax rates are often their only advantage in attracting foreign investment. If the tax rate is to be forcibly flattened, do I need to give these countries a certain amount of compensation? Otherwise, how can we make up for the moral defects that have caused more difficulties for these countries?
In the early days of reform and opening up, China used low tax rates to attract foreign investment, but it quickly abandoned this approach. Today, China is still the most popular destination for foreign direct investment, but our competitive advantage is no longer in low tax rates, but in a complete industrial chain, complete infrastructure, and efficient administration. However, once all countries set the global minimum tax rate, it will be a variable to be considered for more and more Chinese companies going to the international market. If this tax rate is beneficial to the equalization of tax rates in various countries, Chinese companies investing overseas can save the process of comparing tax rates in different countries, but because of various algorithms, it may also make it more troublesome for companies to invest overseas.