The US offer on reforming international corporate taxes is good news. The mooted compromise would not only be a victory for multilateralism and break the deadlock that has seen ad hoc digital taxes proliferate. It would also be a means of ensuring that companies visibly pay their fair share as the world begins to recover from the pandemic.
The global system of corporation tax, as embedded in international treaties, has long needed an overhaul. It was created for an age when capital investment meant spending on physical assets such as factories or farms with a presence in a defined location. But it has struggled to cope with the rise of “intangibles” where assets can be wherever a company decides. This has encouraged a “race to the bottom”, with smaller countries vying to offer the lowest rate to attract multinationals.
US president Joe Biden’s latest offer is based on twin pillars suggested by the Organisation for Economic Co-operation and Development, the rich country think-tank. The first would establish a “taxing right” for countries based on the portion of sales of “consumer-facing” companies in their territory. It would allow, among other things, European countries to tax more of the profits of US tech giants such as Apple or Facebook.