Pushing back the Biden tax cartel

President Joe Biden signs an executive order on “Promoting Competition in the U.S. Economy” at the White House in Washington, DC on July 9, 2021. (Evelyn Hockstein / Reuters)

Of Deutsche Welle, yesterday:

Ireland is about to abandon its 12.5% ​​corporate tax rates later this year, Irish media reported on Wednesday.

While a formal decision has yet to be confirmed, pressure mounts on Ireland’s opposition to global companies tax reform proposals. Several government sources told the Irish Examiner that the country’s main tax incentive for large multinational companies is set to be dropped in October.

Earlier this month, some of the world’s largest economies reached broad agreement on key aspects of a global tariff that will see a minimum tax rate of 15%.

Irish Finance Minister Paschal Donohoe has so far only indicated he is ready to discuss the impact of a new global minimum rate, but behind the scenes there is greater determination to comply , according to the daily.

“Ireland will continue to defend the rights of small countries to retain some competitive advantage, but we do not want to be an exception in terms of a global tax deal,” a senior coalition official told the newspaper.

Ireland does not want to become an international pariah, according to the source, and is therefore ready to follow the new proposals.

Then again, of Irish time today:

Minister of Finances Paschal donohoe said that Ireland cannot be part of an international agreement on a minimum overall tax rate of 15 percent.

“What is on the table is a deal that we cannot be a part of,” he said. RTÉ Morning Radio Ireland.

However, Mr Donohoe said he was determined to see if a deal could be reached at some point, but not now.

“We are determined to negotiate to see if we can get the deal done at some point, but I am arguing for our 12.5%, it has been a key part of our economic policy for decades and I am so committed to which I decided that we could not make the deal.

Earlier this month, the G7 and OECD countries have reached agreement but not unanimous consensus on key aspects of a global tax deal that aims to introduce a minimum rate of 15 percent. Ireland is one of a handful of countries like Hungary that oppose a 15 percent rate. . .

Needless to say the Irish time this is what it is – the bad boy Hungary is cited as an example of one of the holdouts, but it is more instructive to look at Estonia.

Here is the Estonian President, Kersti Kaljulaid, via CNBC:

“There are currently no companies in Estonia that will fall under this proposed new regulation,” Estonian President Kersti Kaljulaid told CNBC’s Rosanna Lockwood on Tuesday.

“We are discussing theory. We are not stealing any dollar of tax money from any country in the world, ”she said. She added that Estonia is “extremely transparent” with its tax administration. “We are not a tax haven,” she said.

The President said Estonia needed to know more before deciding what to do. . .

“Because we don’t know the technical details, we can’t sign yet,” Kaljulaid said.

Discussions cannot be rushed, and it is not yet clear what the settlement will look like, she added.

“But when the technical details are known and we can negotiate on those technical details, I’m pretty sure we’ll find a way to prove to the world that our tax system will work with this new system globally as well,” she declared. “I am very optimistic.

Estonia’s “problem” is not its corporate tax rate (which is 20%, compared to 12.5% ​​in Ireland and 9% in Hungary), but the nature of the corporate income that is taxed. (mainly retained earnings are excluded). Eager as always to present click traps, I wrote about the Estonian tax system in a recent capital letter, borrowing heavily from the work of the Tax Foundation, explained that

for [2020] the seventh consecutive year, Estonia has the best OECD tax code. Its better score is due to four positive features of its tax system. First, it has a 20 percent corporate income tax rate that only applies to distributed profits. Second, it has a 20 percent flat-rate personal income tax that does not apply to personal dividend income. Third, its property tax only applies to the value of the land, rather than the value of real estate or capital. Finally, it has a territorial taxation which exempts 100 percent of foreign profits made by domestic companies from national tax, with few restrictions.

I added:

It should be noted that Estonia’s territorial tax system is only applicable or EU / EEA and Swiss income are affected, although separate tax treaties with other countries may limit double taxation: For those who wish to deepen Estonian taxation (you know you do), whether it’s a business or an individual, you can find it here. Among the highlights, no inheritance or gift tax, 20% VAT and, if you are concerned that a company does not pay tax on retained earnings (a measure intended to encourage the investment), it should be noted that, if a sells shares of a company, the implied value of those retained earnings will (or should be) reflected in the share price and, to the extent that the shareholder makes a profit on this sale, capital gains would be taxable (at 20 percent).

I go into the details of the tax system of Estonia because it is significant that a small country which, for obvious historical reasons does not want to distance itself too much from the Western consensus, does not want to join the Biden cartel. Having conceived a rational, reasonable, competitive tax system (which the United States would do well to follow – yes, under certain conditions that should include a VAT, or something like that), it’s understandable that he doesn’t want to change any aspect of it in order to make it easier for Joe Biden to continue his national political agenda.

And (this may sound familiar to the Irish):

After centuries of foreign occupation, Estonia is also very aware of the importance of preserving its sovereignty. And, as no American needs to remind you, especially this weekend, the control of taxation is a central element of the sovereignty of any nation.

It seems clear that both Ireland and Estonia would at least want to appear to comply with the demands of the Biden cartel while preserving the integrity of their own tax regimes. This may be easier to achieve for negotiators in the case of Estonia (thanks to its higher overall rate) than for Ireland or, for that matter, Hungary, another nation that suffered under a long foreign occupation. Its prime minister, Viktor Orbán, got that say:

I consider it absurd that a world organization [the OECD] should claim the right to say which taxes Hungary can collect and which taxes it cannot collect.

He’s not wrong.

Estonia, Ireland and Hungary are all members of the EU, as is Cyprus (which also has a rate of 12.5 percent, has not been involved in recent minimum tax discussions, and is not keen on the idea). Any of these four has the ability to block the EU from signing the deal in block, although some Member States can still enlist.

There was a time when the United States believed in the virtues of competition. Not anymore, it seems, at least if the administration’s tax approach is a guide. In the meantime, I look forward to the time when those in America who are normally so quick to attack the United States for anything that looks like imperialism will join in opposition to the proposed tax cartel.

About Leah Albert

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