Demanding a global minimum corporate tax rate could detract from Alberta’s advantage as the lowest tax jurisdiction
There is renewed interest and support worldwide for a global minimum corporate tax rate, but some Alberta politicians and professors say a global tax rate would destroy Alberta’s competitive advantage.
“We have a Conservative government here in the province, and their whole point is that we create a business-friendly environment and then we move businesses here from elsewhere, which creates jobs and creates wealth,” said Vishal Baloria, professor at the Alberta School of Business at the University of Alberta. One of his roles is teaching students about corporate income tax, which is a corporate income tax.
“You always have to think about these things completely, properly instead of thinking about them in isolation.”
The Organization for Economic Co-operation and Development (OECD) has been in talks with countries about setting a global minimum tax rate for companies for almost a decade. US President Joe Biden is currently pursuing an infrastructure plan. To fund this plan, his government is proposing to increase corporate tax from 21 percent to 28 percent. US Treasury Secretary Janet Yellen last month called for a minimum corporate tax rate.
Over the past 20 years, Canada has steadily lowered its corporate tax rate to 15 percent today. The U.S. also cut its rate under Donald Trump’s administration to become more competitive.
Last year Alberta Prime Minister Jason Kenney cut the corporate tax rate to eight percent – the lowest tax rate in Canada. If the US increases its own federal tax rate to 28 percent and doesn’t introduce a global minimum corporate tax rate, Alberta could potentially have the lowest tax rate anywhere in the US.
“If the US government goes ahead with its plans, Alberta will be the lowest corporate income tax rate, which is great for Alberta because I think it will attract investment,” Baloria said.
However, should countries commit to setting a minimum rate, Alberta could be forced to raise its own. One reason the US is supporting a global minimum is because its domestic tax environment is becoming more unfavorable compared to Canada and other countries, he said.
“It’s almost like they’re trying to take other countries for the ride,” said Baloria. “We can all agree to do the same thing as the global minimum corporate tax rate, or we could choose to compete. So in the past we competed for corporate tax rates. “
Baloria said that most of the G20 countries agree to work together. Overall, he thinks the move is great for the United States, and Canada tends to do better when the US is doing better, especially the manufacturing base in central Canada.
“But essentially the G20 countries like Canada and the United States will be better off, and countries that have traditionally been tax havens like the Cayman Islands, Ireland and Singapore will be worse.”
Baloria said there is a lot of political will for it at the moment and that this may be related to the pandemic.
“I think it’s palatable because governments around the world are going to be spending money on infrastructure and having a global minimum corporate tax rate will help them raise funding for all of the infrastructure,” he said.
He said he believes there will be some form of a global minimum corporate tax rate by the end of this year.
“I think a lot of the debate is not about whether it will happen, but about what (rate) will ultimately be right, will it be closer to 12 percent or 21 percent?” said Baloria.
Sturgeon River-Parkland MP Dane Lloyd said Alberta’s low corporate tax rate is important when it comes to competing for petrochemical investments in the provincial heartland.
He said Alberta has the Alberta Petrochemical Incentive Program, but places like Texas and Louisiana – which also compete for petrochemical dollars – have programs that don’t tax businesses for 20 years and programs that pay 10 to 20 percent of capital expenditures.
“Our low corporate tax rate is essentially one of the green factors we need for this type of investment. And if we sign treaties forcing Alberta and Canada to hike corporate taxes while the US continues to subsidize petrochemical investments, we will really hurt our industry, ”said Lloyd.
Lloyd said he supports eliminating aggressive offshoring to avoid taxes, but is skeptical that a global minimum would be the solution
“We need to make sure Canada is not aggressively trying to undercut other countries, but at the same time we are making economic decisions and as a country we have chosen to have low corporate taxes and we shouldn’t be punished for making economic decisions,” he said.
St. Albert-Edmonton MP Michael Cooper believes that Yellen’s current move is implicit confirmation that their corporate tax hikes will undermine US competitiveness.
Cooper does not accept the race to the bottom argument. In Canada, corporate tax rates have halved, and yet we have not seen a drop in corporate tax revenues.
“In all fairness, if the Biden government is to characterize this as a race to the bottom in terms of competition between developed countries to introduce tax codes that attract investment and capital, why shouldn’t we want to keep the lead – or keep it?” our lead, ”he said.
Cooper said the proposal is getting a warmer reception than in the past, but he doesn’t think it will be adopted.
“I think the proposal will ultimately fail. I just don’t see a number of countries including Canada doing it in the best interests of adopting it, ”said Cooper.