Explaining Biden's tax reform proposals
Dr Maggie Cooper discusses the US President's global tax plan.
US proposals on tax reform sent to governments around the world recently have the potential to make a significant impact on the incentives faced by multinational companies to avoid tax. This is an issue that has gained more and more attention over the last 10 years as governments and the public have realised how much potential tax revenue they are missing out on – an issue that is particularly important for governments of developing countries.
Currently, multinational companies are able to shift profits made through sales in a higher tax country to another with a lower tax rate, thereby reducing their overall liability. When tax haven subsidiaries are used the rate of tax may be as low as zero. The recent growth in digital companies has exacerbated the problems inherent in the global tax system as these companies can often provide products and services to customers in a particular country without having a taxable, physical base in that country. This confers on these companies significant ability to choose where they book their profits and therefore the taxes that they are liable for.