LONDON (Reuters Breakingviews) – French Finance Minister Bruno Le Maire wants U.S. President-elect Joe Biden’s help on corporate tax reform. Unfortunately, he’s going about it the wrong way.
Le Maire hopes Biden will unfreeze global negotiations that have been stalled since June. France, Britain, Spain and Italy would like digital giants such as Amazon.com and Google’s parent Alphabet to pay tax partly on the basis of where sales are made, rather than where profit is declared. The current regime allows technology companies to shift profit generated in, say, France, to lower-tax countries like Ireland and Luxembourg.
The new approach will be as hard for Biden to accept as it was for his predecessors. Barack Obama’s administration, for example, helped kill an earlier effort to update corporate-tax rules for the digital age. The problem is that France and others are reaching for money that could ultimately find its way back to America’s coffers, for example when tech companies move cash stashed in Ireland to U.S. shores. It won’t help that France and Britain introduced emergency digital taxes, mostly hitting American companies, in case the Organisation for Economic Co-operation and Development-led talks fail.
There’s a simpler option. Rather than focusing on tech, governments could introduce a global minimum corporate tax rate. This would suit everyone except tax havens. America already has a similar measure in the so-called GILTI provision of its tax law. Le Maire, for example, could then take the difference between the agreed threshold and what French companies actually pay on profit declared in low-tax countries. It would end the incentive to shift profit.
An OECD analysis suggests introducing a minimum tax rate would raise up to $70 billion outside of the United States, with high-income nations like France doing particularly well. By comparison, the changes that European countries want made to digital-services taxation would at most raise $12 billion globally.
It’s possible to introduce a minimum tax without also tweaking the rules for digital companies. Biden could probably live with that. France and other European countries, however, have insisted on linking the two ideas – not least because they made a political fuss about taxing Big Tech. The risk is that their dreams of digital riches will scupper the chances of a mutually beneficial compromise, at a time when governments everywhere are looking for revenue to fill gaping budget deficits.
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