Pascal Saint-Amans recently announced that he will step down is director of the OECD Tax Policy Center. Over the past decade, Saint-Amans has led a concerted global effort to curb tax evasion by multinational corporations, an effort that culminated in pledges last year by 130 countries – including the US – to implement a global minimum tax. Now, with the passage of the Inflation Reduction Act, the United States is enforcing this global agreement.
As a former tax advisor to some of the world’s largest corporations, I am well aware of the many strategies multinational corporations use to avoid paying taxes. Instead of imposing a global minimum tax rate, the recently passed legislation addresses domestic concerns that corporations are not paying their “fair share” by imposing new taxes on the book profits of corporations. Coporation, group. This is the wrong method.
Companies are so good at evading taxes, that for all their complaints, they explain just over 5% tax revenue of the United States, leaving more of a tax burden on the rest of us. The act aims to close this gap by levying a minimum additional tax of 15% on the substantial book profits of publicly traded corporations, such as Amazon and Netflix report to shareholders. These companies usually pay zero or near zero tax rate on that income, primarily by claiming tax deductions and perfectly legal credits for things like investments and research activities.
It may seem surprising that profitable companies pay no taxes – but there are good reasons why book income reported to shareholders and taxable income are reported on tax returns. difference. Financial accounting rules govern book income in order to provide timely and useful information about financial statements to investors and the like. On the other hand, tax policies that manage taxable income aim to increase revenue and shape behavior, for example by encouraging economic growth and investment in clean energy. Taxing book income can encourage managers to reduce book income by exploiting the complexity of financial accounting rules to evade taxes, reducing the usefulness of book income to customers. with investors. It also loses the power of Congress because earnings on tax books do not reflect many of the tax policy deductions and credits, reducing its ability to stimulate desirable investments.
A better approach would be for the US to follow through on Treasury Secretary Janet Yellen’s pledge last year to enact a global minimum tax rate. Under the global agreement, multiple countries will work together to ensure that multinational corporations pay at least 15% tax in each and every jurisdiction in which they operate, regardless of local tax rates. . By making good use of the OECD-brokered agreement, we can significantly reduce the tax benefits that multinationals derive from relocating their profits and operations to tax havens. countries are all too eager to offer competitive tax rates to attract this activity.
It is widely reported that Democrats must Eliminate the global minimum tax to win Senator Manchin .’s vote about the Inflation Reduction Act, without it, they could not pass the bill. As a result, the Inflation Reduction Act changes our promise to join a global effort to prevent multinationals from denying their tax obligations and to bring the U.S. tax system to ruin. in sync with the rest of the world.
The OECD’s progress in curbing multinational tax-related scams could stall. Or, because the global minimum tariff could still work without US involvement, the rest of the world could go ahead with the deal without us. But we ourselves do not enter into the agreement will actually allow other countries to collect the new global minimum taxes we owe. Senator Manchin’s objection is estimated to cost us more than 100 billion dollars in taxes every year in tax revenue lost from the global minimum tax rate.
If Democrats can keep their grip on power beyond the upcoming midterms, they should repeal the pointless book tax and enact a global minimum tax instead – a tax we’ve committed to. in theory but not in practice. A global minimum tax in harmony with the developed world is the best way to increase tax revenue, negate multinational tax strategies and weaken tax rate competition between countries. Taxes on book profits are not.
Lisa De Simone is a associate professor of accounting at the McCombs School of Business, a Public Voice Member of Project OpEd at the University of Texas at Austin and co-host of the podcast Taxes for Masses.
Opinions expressed in Fortune.com commentary are those of their authors only and do not reflect the views and beliefs of Luck.
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