BRUSSELS – The United States is hoping Ireland will abandon its opposition to joining the global tax treaty it brokered, as Treasury Secretary Janet L. Yellen argued this week to her Irish counterpart that it is in its economic interest, the deal.
During a week-long trip to Europe, Ms. Yellen worked to gain more support for a global plan to end tax havens and curb profit shifting with a new global minimum tax. The agreement, which received the support of the Group of 20 Nations on Saturday, would introduce a minimum global tax of at least 15 percent. It would also change the allocation of taxation rights and allow countries to levy taxes on large, profitable multinationals based on where their goods and services are sold.
“For Ireland, low taxes have been an incredibly successful economic strategy,” Yellen said in an interview on Tuesday before her return to Washington. “They see this as very important for their economic success. And I think, in order to go along, they probably have to be able to make sure it’s in the country’s interest. “
Ms Yellen held high-level meetings in Brussels this week with Paschal Donohoe, Ireland’s Finance Minister and President of the Eurogroup, a club of European Finance Ministers. It needs the support of Mr Donohoe because the European Union requires the unanimity of its members to formally accede to the agreement, which requires changes to national tax laws.
After meeting Ms. Yellen on Monday, Mr. Donohoe adopted a positive tone and said he would continue to be involved in the process.
Despite growing global support for the agreement, much remains to be done.
More than 130 countries have supported a framework of the global agreement that would represent the biggest upheaval in the international tax system in decades, but key objectors like Ireland, Hungary and Estonia persist. With stops in Venice and Brussels on her first trip to Europe as Finance Minister, Ms. Yellen worked with her counterparts to develop a strategy to get these countries to drop their concerns and join the deal so that a final pact can be reached by October .
Ms. Yellen told her Irish counterpart that Ireland’s economic model would not be turned upside down if it raised its tax rate from 12.5 percent, noting that there was still a large gap between its rate and the 21 percent tax rate for foreign income that the Biden government has proposed.
The Biden government believes that when the deal goes into effect, it will end the “race to the bottom” in corporate taxation and usher in a new era of corporate governance that will help nations fund new infrastructure investments and reduce inequality. Greater tax justice could also help reverse the rise of right-wing populists who have come to power around the world on a wave of frustration that working-class citizens have been forgotten by the elites.
“Globalization is not just about enriching the rich and harming the poor,” said Yellen. “In a broader sense, the international tax return is about that.”
Top economic officials are working out intricate details of the global tax plan and will endeavor to finalize them in the coming months. A sensitive issue that emerged at the G20 meeting in Venice last weekend was the global distribution of tax revenues as part of a new tax on the largest and most profitable companies.
Daily business briefing
July 13, 2021, 6:52 p.m. ET
Selling the deal in the US could be the biggest challenge. Congress is tightly divided and Republicans firmly believed they would not support tax hikes, which leaves the Biden administration a narrow margin for success, even if it can only pass most of its proposed tax changes with a Democratic vote.
Republican lawmakers have complained that the United States is “giving up” its tax base by allowing other countries to levy new taxes on their businesses. In some cases, for example, China will be able to generate new tax revenue from American companies that sell products there. However, the United States will likely be able to collect taxes from some Chinese companies doing business in the United States. It is not clear whether China would make any net profit from this part of the deal.
Ms. Yellen presented the global tax as part of a broader economic computation that the Biden administration believes must be done to prepare the United States – and the rest of the world – for future fiscal needs.
She pointed to the Biden government’s tax plans, which include raising the corporate tax rate from 21 percent to 28 percent as a central element of this approach.
“It is just not right for very successful companies not to be able to pay their fair share to finance the expenses we need to invest in our economy, in our workforce, in research and development. and a functioning social safety net, ”said Ms. Yellen.
Yet opposition from American corporations is mounting, and corporate groups warn that the possibility of a $ 2 trillion corporate tax hike would make American companies less competitive worldwide. And as rising prices continue to be a problem among policy makers in the United States, business interests have said the tax hikes could fuel inflation as companies pass them on to consumers.
Ms. Yellen dismissed this theory, arguing that most economic research has shown that corporate tax increases are mainly due to past investments and would not harm workers or cause prices to rise faster.
“There is no reason to believe that a change in corporate taxes would have a direct impact on prices,” said Yellen.