German Finance Minister Olaf Scholz has said he will seek an agreement with the new Biden administration on global business tax rules, as hopes rise in Berlin that the end of the Trump presidency will usher in a new era of multilateral cooperation.
Speaking at a Reuters conference in Berlin on Tuesday, he said the plan was to reach an agreement by the summer on a tax plan unveiled last year by the OECD, the club of rich nations.
The set of principles put forward by the OECD in October, and strongly supported by Germany, would revolutionize the taxation of multinational corporations and bring in around $ 100 billion in additional tax revenue worldwide.
The OECD has sought consensus among more than 135 countries on reforms, which it says would allow tax authorities to collect up to 4 percent more corporate tax.
The aim of the OECD project is to ensure that multinationals, including highly profitable US technology groups and European luxury goods companies, pay taxes on some of their profits where they do business, rather than where they register subsidiaries, while also introducing an overall minimum corporate tax rate to avoid a race to the bottom.
The plan has received strong support in Paris, Madrid, London and Rome, who say companies like Apple, Facebook and Google are profiting hugely from the European market while making minimal contributions to national treasures.
Whether to approve the OECD blueprint will be one of the first tests for Joe Biden’s new administration. US opposition had been one of the main reasons that progress on a political agreement had stalled.
The United States supported the process, but in June of last year suspended talks with European countries, claiming that the talks were at a “dead end”. US Treasury Secretary Steven Mnuchin has also threatened to impose tariffs on all countries that levy their own digital taxes.
The OECD approach is based on two pillars: it would allow countries to have certain rights to tax profits made on the basis of sales in their jurisdiction. This would not only apply to the overseas operations of American tech giants, but would also give the United States, for example, the right to tax European companies on luxury goods.
The second pillar is an overall minimum corporate tax rate. This would be aimed at preventing countries from lowering corporate tax rates in an attempt to attract corporate headquarters to their jurisdictions.
France has refused to wait for other states to approve the OECD’s approach and last year continued its own digital services tax. In November, the French tax authorities began demanding millions of euros from American companies such as Facebook and Amazon in payment of the new tax for 2020.
Washington condemned the French tax as an example of an unfair trade practice because it largely affects American businesses.
He first said he would retaliate by imposing a 25% tariff on French handbags and makeup from January. But the U.S. Trade Representative’s office said last week it would. suspend tariffs and instead coordinate them with any tariffs that might emerge from a series of surveys he has launched into digital taxes in other countries.
Mr Scholz opposed the “go-it-alone” approach followed by Paris and supported the OECD’s plans. Mr Scholz said last year that a deal would not only strengthen national budgets and limit tax evasion, but also help businesses by reducing legal uncertainty.
Additional reporting by Chris Giles in London