THEBUZZ
THEBUZZ

THE BIDEN REVOLUTION ON CORPORATION TAX

What have Amazon, Facebook, Google, Apple, Nike, and Fed-Ex among others have in common? They all pay less percentage tax than the average tax-paying employee and the average Business around the corner. For decades, these mega transnational corporations have played cat and mouse with the tax systems and avoided as much corporation tax as they can legally get away with. Now President Biden is going to put an end to that. It will depend on the cooperation of other countries.

Biden is turning out to be the pendular opposite of Trump. Having announced a 2.1 Trillion dollar stimulus package, he now needs the money to make it happen. The big 100 companies that have had it so good so far, are in line to start paying up.

These companies have been hopping and changing their headquarters to places where corporation tax is least. In Europe, Ireland lifted itself out of the financial crises of 2008 by offering refuge to these companies. As opposed to 19% (UK) and 30% tax (Germany) levied in other European countries, Ireland offered 12.5%. There are the UK offshore places such as Isle of Man that have 0% corporation tax

Ireland offers a number of highly complicated schemes to multinational corporations. Through some of these schemes, the tax effectively comes down to between 2.2% to 4.5%.  Compare that to the 30% tax in Germany or 21% in the USA. Facebook effectively saves 18% tax simply by rerouting its profits through Ireland.

Ireland offers both a skilled force and as an EU country, access and privileges of the EU without the other EU countries’ taxes. So over 1000 multinational corporations have made their headquarters in Ireland. These include Facebook, Pfizer, Twitter, IBM, Apple, etc.

It is estimated that some $420 billion are avoided by Transnational corporations every year simply by rerouting their profits through a mirage of accounting systems and tax havens or low tax countries. This would be enough to end poverty around the world.

Former Vice President Joe Biden, 2020 Democratic presidential candidate, speaks during a primary night rally in the Baldwin Hills neighborhood of Los Angeles, California, the U.S., on Tuesday, March 3, 2020. Photographer: Patrick T. Fallon/Bloomberg

Transnational corporations claim that they do pay tax. They say that they employ a lot of people and those employees pay income tax! This excuse could be used by every business. That the Business has 10 employees who pay income tax and that cumulatively this is enough, therefore there is no need for corporation tax.

Trump protected the Transnationals from any attempt to tax them around the world. Twitter, which finally banned him, gained a lot from his policies.

Biden on the other hand has now floated the idea of a minimum corporation tax around the world and that tax would be paid in the country where the business is conducted. So if Facebook has 10 million followers in India and earns 10 crore rupees from India through ads and promotion, it will have to pay Indian corporation tax on that money before it can take its profit out.

This is being welcomed by Europe. Countries have suffered a lot with Transnationals avoiding tax in the country they do business. As a result, the small businesses and income tax and indirect taxes cover the deficit run by Governments to meet their obligations, such as health care spending, etc.

The pandemic has brought the issue to the fore as Transnationals got richer while countries have gone into debt. That debt will have to be paid either by citizens or a fair tax regime on Corporations who have been playing wily games with their obligations while pretending to be great philanthropists and humane by donating morsels in charity. Many activists have pointed out that there would be no need for any charity from these multibillionaires if they simply paid the expected taxes.

The proposal for a minimum agreed tax around the world by every country has been discussed at the G20 where ministers agreed to make progress on this. Biden’s proposal is that countries agree to a minimum corporation tax below which they cannot go. They can go as high as they want. His proposal is for 21% as minimum tax in every country and kill off tax-havens.

The combination of companies having to pay tax in the country they do Business and a minimum tax agreed internationally will have a seismic effect on the world economy, taxation on ordinary citizens, and the recovery from the pandemic.

The 135 nation Organisation for Economic Cooperation and Development is likely to agree to the Biden proposal. Pascal Saint-Amans, the head of tax administration at OECD says that the game is over for these tax-avoiding transnational corporations.

This proposal challenges one of the most notorious countries that have both introduced tax systems and created pirate economies acting as tax havens. The United Kingdom has the most number of tax havens dotted around the world. These include Guernsey, Jersey, Isle of Man, Cayman Islands, British Virgin Islands, and Bermuda.

It is likely to bring further tensions in the much-hyped special relationship that British politicians talk with megaphones but Americans rarely mention except on British soil when forced to. Britain is likely to resist the Biden proposal and will no doubt try and influence many a US politician to vote against it in the Congress and Senate.

Biden has a tough job both internationally and nationally to get this policy through. It is much bigger than the Obama health care plan and is likely to pit the Democrats against some of the very big corporations that were encouraging a change from Trump.

Either way, all countries including India will gain. It will help the world to start its recovery and reduce the burden on the average taxpayer. Economists have said taxes have to go up in countries that have spent Billions and Billions in meeting the challenge of Covid. Others have predicted a back to ‘Austerity’ economics. Biden is pitching for a fair tax system instead.

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