US President Joe Biden's proposal for a minimum global corporate tax could cause division among EU member states.
ADVERTISEMENTEU countries with low rates of corporation tax could come under pressure from others in the bloc to go along with a minimum global levy, according to one expert.
Jacob Kirkegaard, a senior fellow at the German Marshall Fund, told Euronews that US President Joe Biden's proposal for a worldwide tax on the largest businesses could cause significant division among EU countries.
Earlier this month, Biden's administration said there should be a global minimum corporation tax rate of 21 per cent, in order to stop companies from using loopholes that allow them to earn their money in high-tax countries, whilst booking their profits in exotic places where tax rates are low or non-existent.
"We are working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom," US Treasury Secretary Janet Yellen said in a speech at the beginning of April.
High-tax countries like France, Germany or Italy were immediately supportive of the plan, but member states like Luxembourg, the Netherlands and Ireland, who have all attracted considerable business over the years thanks to their low corporate tax rates, showed cautious willingness to cooperate, but negotiations could be difficult.
"They have to put a lot of pressure on Ireland and the Netherlands to come along and how do they do that? Well, it's politics. In the case of Ireland, I'm sure they would tell the Irish government that you should fall in line with this proposal, otherwise you may not get the support you perhaps want on Northern Ireland and the Brexit situation. There will be other points on which you can pressure the Netherlands," Kirkegaard told Euronews.
Unsurprisingly, Biden's proposal was criticised by some of America's larger businesses, with tech companies, in particular, voicing their concern, given that they are the main beneficiaries of the existing system.
"It means that companies aren't going to be able to hide their income in places like the Cayman Islands and Bermuda tax havens, and also eliminate deductions used by corporations for offshoring jobs and shifting assets overseas," Biden said in an address earlier this month.
Despite the corporate criticism, the International Monetary Fund (IMF) welcomed the idea, with the organisation's chief economist saying that the IMF is "very much in favour of a global minimum corporate tax".
Kira Marie Peter-Hansen, a Danish Green MEP also told Euronews that she was "really happy" about Biden's announcement.
But his proposal could put European solidarity to a test.
And if Europe can't eventually find common ground, then the US President could go on the offensive, according to Kirkegaard.
"If it comes to a trade war over this, I can guarantee you that the United States will target the exports coming from the member states that oppose this proposal. So, that will be Irish, Dutch and other exports to the United States that will be specifically targeted by the United States for retaliatory tariffs," the expert told Euronews.
If Biden's proposal does become a reality, the Irish and the Dutch might lose their competitive edge on corporate taxes, but a common higher tax rate would, overall, mean more money in public coffers for everybody.