Corporate Tax

Biden warned that the corporate tax plan may backfire

The Biden government’s plan for a global minimum of corporate tax risk could backfire in the US and the West as consumer surge in India and China shift sales to Asia, tax experts have warned.

The US has proposed a minimum tax based on local sales, but the president has been warned that the shrinking influence of the West will cause revenue to be focused on the developing giants in Asia within decades.

Marvin Rust, Head of European Taxes at Alvarez & Marsal, said, “Over time, as the Indians and Chinese become wealthier and more bourgeois and their consumption increases, politics would shift to tax revenues in China and India.

“You can see that the Chinese and Indians do not want this to be reversed when their population becomes wealthier. From the perspective of the western world, a little care needs to be taken on this.”

The White House is trying to win support for its plan, which aims to improve tax play and curb avoidance.

Many European leaders have also backed proposals for a global minimum tax on the largest corporations after trying in recent years to contain US tech giants.

Matt Kilcoyne, associate director of the Adam Smith Institute, said: “The concern is absolutely correct, and it shows well that Yellen is trying to sustain a world that is rapidly ceasing to exist. Emerging non-Western states will not automatically accept US hegemony. “

He added: “The demand for tax harmonization could hug our old friends and countries we are currently having problems with while downsizing the West.”

Economists expect tectonic changes in the world economy in the next few decades, with developing countries becoming far more powerful and richer. The economies of China and India are expected to catch up to the size of the US, with Indonesia, Brazil, Mexico and Nigeria climbing the rankings as well.

The US plans to hike corporate taxes to fund an increase in spending, with Joe Biden envisaging an increase in infrastructure investments. However, his plan may struggle to gain support from countries that benefit from low corporate taxes.

Bank of America estimates that in 2019, 60 percent of US multinational corporations’ income was booked in just seven tax havens, including Ireland, Switzerland and the Netherlands. That has risen sharply from 30 percent in 2000.

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