Joe Biden’s global corporation tax deal: A prediction on what’s next

Lewis Page19th October 2021 (Last Updated October 19th, 2021 12:57)

So the new global corporation tax deal is here. The details will be a while in coming, but in broad outline the nations of the world have agreed to a lower limit on corporation tax of 15%. The G20 finance ministers met in Washington last week to sign off on the deal.

It’s possible to portray this as something of a miracle. Some countries, most famously Ireland, were making a very good thing out of lower rates of corporate tax: 12.5% for the Irish. As a result of this low rate many huge multinational companies have established offices in Dublin, through which they have declared much or most of their profits made around the world.

It might seem odd that the Irish government and the governments of other tax havens have agreed to raise their rates and make themselves less attractive to multinationals deciding where to book their profits.

But, as we at Verdict pointed out, the Biden administration in the US – which had promised to make big companies pay more tax, and whose diplomacy has pushed through the new global agreement – was not limited to carrots in persuading Ireland and others to fall in with its plans. It also deployed a highly effective stick, in the form of its proposed new SHIELD tax regime in the USA, which would have compelled multinationals to pay full US rates of 21% on all US-derived profits if they made payments to entities in nations designated by the US as being low-tax ones.

As we suggested, way back in July:

Ministers in Dublin might well be thinking right now that 15% of some money may not, indeed, be as good as 12.5% of a huge amount of money: but it’s a lot better than 12.5% of not much, which is what they’d get in a SHIELD world … Other tax-haven governments are probably making similar calculations at the moment …

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