An open letter to Joe Biden on worldwide company taxation by José Antonio Ocampo, Joseph E. Stiglitz and Jayati Ghosh


For too lengthy, worldwide establishments have did not deal with some of the poisonous facets of globalization: tax evasion and company fraud. Honest taxation of multinationals have to be a central factor of any tax system geared toward stimulating financial development and making a excessive lifestyle for all.

Expensive Mr. President,

The world hailed your election and your dedication to re-establishing diplomatic engagement with the worldwide group on the middle of US overseas coverage. By rallying governments to create the circumstances for a simply and environmentally sustainable world financial restoration, your management can encourage transformative change.

For too lengthy, worldwide establishments have did not deal with some of the poisonous facets of globalization: tax evasion and company fraud. Honest taxation of multinationals is important to create the type of society we aspire to, and it have to be a central factor of any progressive tax system geared toward stimulating financial development and creating excessive requirements of dwelling for all. Ending company tax evasion can be probably the greatest methods to deal with creeping wealth and revenue inequality.

By shifting their earnings to tax havens, giant companies are depriving governments all over the world of no less than 240 billion {dollars} per 12 months in tax income. This deficit impacts not solely the US, the place about 50% of abroad earnings made by US multinationals are transferred every year to tax havens, but in addition to the South, the place sources of revenue are extra restricted and the place the dependence on company tax revenues to finance public companies is larger.

As members of the Impartial Fee for the Reform of Worldwide Enterprise Taxation (ICRICT), we urge you to respect your promise “Main worldwide efforts to carry transparency to the worldwide monetary system, deal with illicit tax havens, seize stolen belongings and make it tougher for rulers who steal their individuals to cover behind nameless shell firms.” To do that, your administration ought to actively have interaction within the ongoing efforts to overtake the worldwide tax system to make sure honest taxation of multinationals, which is presently the topic of discussions throughout the OECD course of mandated by the G20.

Sadly, these negotiations didn’t go properly. The governments of main member states (together with the earlier US administration) negotiated below the mistaken assumption that their nationwide curiosity is greatest served by defending multinationals headquartered inside their borders. Discussions on the reform of worldwide taxation thus sacrificed frequent ambition to the bottom frequent denominator.

In the meantime, multinationals proceed to keep away from taxes that would assist pay for presidency spending to assist post-pandemic restoration. The world can not afford it.

The negotiation course of nonetheless resulted in settlement that multinationals must be seen as unitary enterprises. Which means their worldwide earnings must be taxed in accordance with their precise actions in every nation. It is a idea acquainted in the US, the place company earnings are allotted to completely different states in accordance with a system, primarily based on the important thing components that generate earnings: jobs, gross sales, and belongings. However the present proposal solely applies this allocation criterion to a small portion of an organization’s world earnings – particularly these of extremely digitalized multinationals, that are based totally in the US.

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E-commerce has grown by virtually a 3rd in the course of the pandemic, and it’s important that not solely digital multinationals, but in addition the digital enterprise operations of all multinationals pay their fair proportion of taxes. An formidable and complete reform ought to due to this fact be adopted to duplicate the American system on the worldwide stage, with out distinguishing between digital and non-digital firms. Such a rule would assist create a extra stage taking part in area, scale back distortions, restrict alternatives for tax evasion and supply certainty for multinationals and traders.

This method must be supported by a worldwide minimal tax on multinationals, ending dangerous tax competitors between nations and lowering the inducement for multinationals to shift their earnings to tax havens. However the 12.5% ​​minimal price mentioned on the OECD and elsewhere might turn out to be the worldwide cap, during which case the laudable initiative of forcing multinationals to bear their fair proportion of taxes would find yourself doing the other.

Your marketing campaign promised to boost the US minimal tax on overseas earnings of US companies (generally known as “GILTI”) to 21%. This measure wouldn’t solely have the benefit of accelerating the fiscal assets of your nation; it will additionally present political assist for coverage makers in different nations to observe go well with.

An formidable world minimal tax could possibly be a game-changer within the battle in opposition to tax evasion. If the G20 nations agreed to impose a minimal company tax of 25% (just like the ICRICT defenders) on the combination revenue of their multinational enterprises, greater than 90% of world earnings would routinely be taxed at 25% or extra. After all, additionally it is important that such a tax is designed to pretty distribute taxing rights between the house and host nations of firms.

Treasury Secretary Janet Yellen advised his affirmation listening to that your administration seemed ahead to “actively working with different nations” to “attempt to cease what has been a damaging world race to the underside in company taxation.” There isn’t a proof that the current downward development in company tax charges has boosted enterprise funding and development. The 2017 decline in US charges primarily ended up funding dividend funds and share buybacks.

Company taxation is in impact a tax on pure earnings, and due to this fact decreasing the speed has little impact on financial exercise. In different phrases, company tax is basically a withholding tax on dividends, and due to this fact a tax on the revenue of the wealthy, as a result of the participations (straight or not directly by way of, for instance, funds of pension) are much more unequally distributed than revenue.

We ask you to make sure that the US once more leads by the ability of instance and cooperates with different nations wanting to ship complete reform that’s honest to the US and the remainder of the world. Till this honest reform is handed, commerce sanctions in opposition to nations which have already determined to tax digital companies – lots of that are creating nations determined for further revenue – will probably be counterproductive.

Re-engaging within the multilateral system whereas accepting a weak worldwide compromise on the taxation of multinationals will additional erode, not restore, confidence within the system. It’s solely in our energy to construct a post-pandemic world that’s extra sustainable, cooperative and simply, the place multinationals pay the taxes they need to. ICRICT can be honored to assist your administration in attaining this significant aim.

This commentary can be signed by Edmund Valpy Fitzgerald, Kim Jacinto-Henares, Eva Joly, Ricardo Martner, Suzanne Matale, Léonce Ndikumana, Irene Ovonji-Odida, Thomas Piketty, Magdalena Sepúlveda Carmona, Wayne Swan and Gabriel Zucman.

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