"Let's Create a Solution for the Digital Tax and Corporate Tax Floor This Year"

G20 Finance Ministers' Meeting Statement
US Withdraws Opposition in Digital Tax for International Cooperation on Corporate Tax Rate
Efforts to Close Tax Loopholes for Multinational Corporations
Biden Signals Possible Talks on Raising Corporate Tax Rate to 28%

[Asia Economy New York=Correspondent Baek Jong-min] The United States' proposal to allow each country's government to tax its multinational corporations is interpreted as a carrot for the introduction of a global minimum corporate tax rate.

U.S. President Joe Biden is delivering a speech on the tax increase policy on the 7th. While emphasizing the necessity of the tax hike, he also indicated the possibility of negotiating with the opposition party on a corporate tax rate lower than the initially announced 28%.
[Image source=Reuters Yonhap News]

Coincidentally, the Group of 20 (G20), including South Korea, agreed to find solutions by mid-year on setting a global corporate tax floor and imposing digital taxes, suggesting the possibility of realizing country-specific taxation on multinational corporations in the future.

On the 7th (local time), G20 finance ministers and central bank governors stated in a joint communiqu? after a video conference that they are committed to finding solutions for setting a corporate tax floor and imposing digital taxes.

In the statement, they said they will continue to cooperate for a fair, sustainable, and modern international tax system regarding the tax agenda. This indicates that major countries are reaching consensus on the internationally led corporate tax rate floor proposed by the United States.

The decision to discuss not only the minimum corporate tax rate but also the imposition of digital taxes reflects the U.S. stance to resolve sharp conflicts between countries and reach an agreement. The U.S. and Europe have been in conflict over digital taxes. Europe has long advocated digital taxes targeting multinational information technology (IT) companies such as Apple and Google, but the U.S. has opposed this.

The U.S. concession on digital taxes appears to be because international cooperation is necessary for the global corporate tax rate minimum threshold. The U.S. is pushing to raise the corporate tax rate from the current 21% to 28% to secure 2.25 trillion won in funds needed for infrastructure investment after COVID-19.

U.S. Treasury Secretary Janet Yellen argued in an op-ed for the Wall Street Journal (WSJ) that "the U.S. should compete for talented workers, cutting-edge research, and advanced infrastructure instead of competing with Switzerland and Bermuda on tax rates." She criticized the U.S. tax cut policy for failing to bring jobs back to the U.S. and only shrinking the tax base.

Secretary Yellen also said, "The destructive race to the bottom on corporate tax rates will end only when major countries stop cutting and agree to a global minimum tax rate," adding, "We have participated in negotiations through the Organization for Economic Cooperation and Development (OECD) and included strong incentives for other countries to join."

The Treasury Department's 'Made in America Tax Plan' announced that day also predicted that calculating GILTI (Global Intangible Low-Taxed Income) on a country-by-country basis will end tax avoidance by multinational corporations in high-tax countries like the U.S. using tax havens.

President Joe Biden emphasized the importance of the infrastructure investment plan that day, saying, "I am not married to the 28% rate," suggesting he could accept opposition from the opposition party and some Democrats. Commerce Secretary Gina Raimondo also attended the White House press briefing and said, "There is room for compromise regarding the 28% corporate tax rate."

Secretary Yellen explained, "Multinational corporations operating in the U.S. that shift profits to tax avoidance jurisdictions will face sanctions." She also warned, "If we do not reform the tax system now, over $2 trillion in U.S. corporate taxes will be lost overseas in the next decade."

However, President Biden emphasized the necessity of tax increases, saying, "Ordinary people are fed up with being fleeced."

The Treasury Department's disclosed tax increase plan also includes consideration of applying a 15% minimum tax rate to companies with book profits exceeding $2 billion but with little taxable income. Originally, this plan targeted companies with book profits over $100 million, but the scope has been significantly reduced.

The Wall Street Journal evaluated this as the Biden administration softening its tax plan.