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There could be big changes coming for the global tax system. Reports today suggest that the US has backed a plan for multinationals to pay taxes based on where they make sales.
It would be a huge change – and one for which many tax campaigners will be very keen indeed.
The Biden administration has proposed a new model for taxing multinational corporations, calling for the world’s biggest businesses to pay levies to national governments based on their sales in each country as part of a deal on a global minimum tax.
In documents sent to the 135 countries negotiating international taxation at the OECD in Paris and obtained by the Financial Times on Wednesday, the US Treasury laid out a plan that would apply to the global profits of the very largest companies, including big US technology groups, regardless of their physical presence in a given country.
If countries do not compete on tax rates, logically they will compete on how efficiently they spend the tax revenues. Countries where spending enhances productivity will outperform countries that spend on vanity projects and outdated infrastructure.
Many challenges lie ahead for a global corporate tax agreement. For years the US effective corporate tax rate was below the headline corporate tax rate, because of loopholes and careful accounting procedures. Global standards will be required to prevent that undermining an agreed minimum tax level.