The von Biden administration is currently striving to raise the US corporate tax rate and, in addition to this move – partly to parry the criticism that an increase would affect American competitiveness – has also resumed efforts to achieve a global minimum corporate tax rate.
The idea is to develop a framework through a group called the Organization for Economic Co-operation and Development to include member countries that account for about 80% of world trade and investment. The nations would have to voluntarily agree to comply with an agreement that has been reached.
Treasury Secretary Janet Yellen discussed the idea during her confirmation hearing in January and said she wanted to avoid a “destructive global business tax race”.
The U.S. corporate tax rate is currently at 21% after being lowered from 35% during the Trump administration. President Biden has expressed a desire to partially raise it back to 28%, keeping the rate in line with the global overall average, which was recently calculated at 23.85%.
Multinational corporations can pit different nations against each other, but one tech giant stated that the positives of a new tax framework might outweigh the negatives.
In an interview with Yahoo Finance, Ruth Porat, CFO of Google parent company Alphabet (toget), said “we are very supportive” and referred to the ongoing negotiations to update global tax regulations. “It may mean we pay higher taxes, but it’s the right answer because it’s a permanent long-term solution.”
Ruth Porat, Chief Financial Officer of Alphabet and Google, at a conference in 2018. (Phillip Faraone / Getty Images for Fortune)
A focus on “digital service taxes” in every business
Policy makers are confident that an agreement will be possible by the summer that will make it difficult for companies to leave countries that do not offer low tax rates. Multinational companies like Google often pay taxes to a variety of countries in which they have customers and operate. Porat underscored how Google has paid a range of corporate taxes over the past decade, at the same rate as the average OECD tax rate.
The story goes on
Porat joined Google in 2015 as CFO after serving in senior banking positions at Morgan Stanley for more than a decade. She spoke to Yahoo Finance Editor-in-Chief Andy Serwer on an episode of Influencers with Andy Serwer, a weekly series of interviews with business, political and entertainment executives.
Porat is open to discussions about increasing the corporate tax rate because she said, “It is also about the other diffusion of one-off digital service taxes.” She says that these types of taxes, which are primarily aimed at tech companies, “I don’t think they’re permanent or fair.”
A number of countries in Europe and around the world have introduced different versions of these taxes. In France, Italy, Turkey and the UK last October there were taxes on digital services, among other things.
Porat also said that she agreed that “Safe Harbor” rules would be dropped in a definitive deal, although doing so may give Google fewer options later as it seeks to lower its tax burden. The idea that the Trump administration had pushed to have some companies deregistered from new global rules for digital taxes had interrupted talks last year. In February, Yellen announced that she would reverse the rule of the Trump administration, and the move immediately raised hopes of an agreement by the summer.
Officials had feared that tech companies like Alphabet as well as Amazon (AMZN), Facebook (FB) and others could avoid anything that was internationally agreed by leaving the language of the safe haven.
Other big tech leaders – like Facebook CEO Mark Zuckerberg – have expressed support for broad-based global tax reform efforts. “We accept that this may mean that we have to pay more taxes and pay them in different places in a new framework,” he said last year.
Sundar Pichai, the CEO of Alphabet and its subsidiary Google, practically testified in front of Congess last October. (Michael Reynolds-Pool / Getty Images)
It remains to be seen whether Yellen and the OECD can successfully negotiate an agreement that satisfies the countries and is feasible.
Google also announced it would spend $ 7 billion this year to expand its US presence with at least 10,000 new jobs. Porat also made it clear that global presence – and associated taxes – will continue to be an important part of the company’s identity.
“We are a global company. Our mission is to make sure we provide quality information to people all over the world, ”she said. “We’re really proud of the fact that as a developer in a small town in India you have the same access to customers as you do here in New York City.”
Ben Werschkul is a Washington, DC-based writer and producer for Yahoo Finance.
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