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19.10.202107:21 Forex Analysis & Reviews: Janet Yellen: Global corporate tax to benefit everyone

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Exchange Rates 19.10.2021 analysis

Last week, the US government finally approved raising the debt limit by $480 billion. This helped to postpone a technical default for 2 months. This amount of money will be enough for the US Treasury to pay the bills until December 3. Meanwhile, Treasury Secretary Janet Yellen has once again returned to the idea of a single corporate tax. The essence of this initiative is that corporations worldwide will be obliged to pay a single tax. According to Yellen, the proposal has been approved by 136 countries. What is the purpose of a single corporate tax? The US and other wealthy countries with strong economies are tired of losing billions of dollars when many companies and their divisions hide in tax havens. In other words, taxes in Cyprus, for example, are much lower than taxes in the US or Germany. Clearly, many companies (either small or big) register in Cyprus to pay a minimum tax rate and provide their services worldwide. It turns out that an American company with access to the markets of all countries can be registered in Malaysia or Cyprus or elsewhere and pay almost no taxes. This is exactly what rich countries want to fix in the first place, introducing a 15% single corporate tax. In such a case, the registration will no longer matter because companies will have to pay the same tax as they would pay in the US.

At the same time, the essence of this proposal is not entirely clear. In fact, it has been included in the US Budget for 2022. The point is that companies seeking to minimize tax payments will continue to do so even if the tax rate is raised to 15% worldwide. Moreover, it does not mean that corporation and their divisions will immediately leave Cyprus and return to the United States, Germany, or France. As for the companies whose production is located in countries with cheaper labor and lower taxes, the situation will be the same. In fact, such companies provide residents of poor countries with an opportunity to work. Therefore, their presence there is a big advantage for such countries. For that reason, their governments are doing and will do anything to keep large industries in their territories as it is beneficial for their economy in any way. Meanwhile, all attempts to return factories and companies to the US from abroad failed under the Trump administration. So, if the current administration is planning to do the same, it might not work out again.

Paolo Greco
Analytical expert of InstaForex
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