History has taught us not to have too many expectations when a new tenant is installed in the White House. We should however applaud the good initiatives of the United States administration, such as the decision last month to back patent waivers for Covid-19 vaccines so they can be produced in other countries. But that is not all. Joe Biden may also be on the verge of profoundly changing development funding, by tackling an issue he was not expected to address—taxation.
To part-finance its $1.9 trillion recovery plan, Washington wants to look for the funds where they are—in the bank accounts of the wealthiest and the multinationals. To this end, the new administration seeks, among other measures, a minimum corporate-tax rate of 21 per cent on the profits of companies abroad. This means that, for example, subsidiaries of US multinationals established in Ireland, where the rate is 12.5 per cent, will immediately pay an additional 8.5 per cent to the tax authorities in their home country.
This is, of course, a unilateral decision, but it is also a great opportunity for the rest of the world. A global minimum tax is one of the main recommendations of the Report on Financial Integrity for Sustainable Development, presented last February by a United Nations high-level panel (FACTI) of which I am a member.
If endorsed by Congress, and followed by a significant number of countries, the Biden administration’s proposals would be the biggest shake-up in corporate taxation in decades. Multinationals would no longer have an incentive to disguise their practices by artificially concentrating their profits in low- or no-tax jurisdictions. It would effectively mean the end of the ‘tax haven’ business model.
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