US treasury pushes for 21 percent minimum corporate tax on foreign earnings

Tuesday, 14 September 2021
The US Department of the Treasury has put forward an argument for a 21 percent minimum tax on multinational enterprises’ foreign earnings, saying that the OECD’s recent proposals act as “a floor, not a ceiling.”
Capitol building

The Deputy Assistant Secretary for Multilateral Tax and the Counselor to the Assistant Secretary for Tax Policy say that the current 10.5 percent minimum tax on foreign earnings gives companies “large tax incentives to put activities and earnings offshore” and a 21 percent rate would “reduce that tax distortion, favoring activities and earnings at home.”

The treasury notes that the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting plans to implement a global minimum rate of 15 percent allows countries to set a rate that meets their individual needs, commenting that the US “must and can act boldly” in putting in place a higher minimum rate than the internationally accepted standard.

The US Congress Committee on Ways and Means unveiled the Democrats’ budget proposals on September 12, including a domestic corporate tax increase for large corporations. Those with income in excess of USD5 million would be subject to a 26.5 percent rate under the proposals, while the 21 percent rate would continue to apply to corporate income between USD400,000 and USD5 million. A reduced rate of 18 percent is proposed for corporations with income below USD400,000.

Separately, Senator Ron Wyden, Chair of the US Senate Committee on Finance, has put forward a discussion draft for legislation that would address corporate tax abuse through the use of partnerships and pass-through entities.

In the draft, Wyden says, “the complexity of the partnership tax rules makes it difficult for well-meaning taxpayers to comply and allows aggressive taxpayers with sophisticated advisors to exploit them with little-to-no fear of detection.” The draft proposes to close certain loopholes to limit corporations’ abilities to shift tax liabilities and to prevent the shifting of gain or loss between partners.

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