- [Narrator 1] Ireland's GDP has grown rapidly
since Charlie McCreevy
reduced the Irish corporate tax rate from 32% to 12.5%
in the 1999 finance act.
The phenomenon resulting, termed Celtic Tiger,
has been beneficial to the people of Ireland,
many skilled immigrants and companies alike.
Sounds like a win-win to us, but the G7 seems to disagree.
(upbeat music)
- The European Union always tried to
harmonize taxes in the European Union
because they feel like tax competition
within the European Union is not a good idea
because you have countries like Ireland
that have 12.5% of corporate tax rate,
then you have Hungary
as the lowest in the European Union with 9%.
They provide access to the European Union,
but at a much more competitive rate.
- [Narrator 1] On June 5th, 2021,
the G7 agreed on a global tax rate of 15%.
They suggested that multinationals should pay
their fair share of tax in the countries they do business.
What does this mean?
It means that the G7 is planning to tax companies based
on where they operate rather than where they are registered.
They also said an agreement on the global tax reform was
necessary to prevent big companies like Google, Facebook,
and Apple from dodging taxes by locating themselves
in tax havens like Ireland, Switzerland, or Luxembourg.
- So, if you have a bottle of French wine
and you drink it
on your couch at home.
Under the new rules,
this is where the value would be created.
You would sit on your couch, you would enjoy your wine,
You'd be the user of that wine.
With the old system,
the value of that bottle of wine was created in France
by the wine maker, who has centuries of experience
in how to make the best wine.
And for the European Union and the bureaucrats in Brussels.
This was always a big, big problem.
Unfortunately for them,
all those efforts to harmonize those tax rates failed
because of the unanimity standards
and so those countries always voted against
they decided, oh, you know,
we could try to work with the OECD on some form
of a global tax agreement that would cover
the way we tax corporations,
but it would also impeller to impose a global minimum tax.
- [Narrator 1] The picture is no different
on the other side of the pond,
the Biden administration has been particularly eager
to reach an agreement because a global minimum tax
is closely tied to their plans to raise
the corporate tax rate in the United States
to 28% up from 21%.
But surely he knows that will make competition worse
for American companies.
Then why does he want to do it?
- When Biden came into office,
he saw that he has the same problem
essentially as the European Union.
And so he decided if I want to raise taxes domestically
on the US will be less competitive than before.
And so it might be a good idea to have a high minimum tax
in order to artificially protect the US
and make sure it remains competitive.
I think that is the more important reason
is that he discovered that this is a good way
to form a tax cartel to restrict and eliminate,
essentially eliminate competition.
But even China,
even communist China has a lower rate than what Biden
is proposing asleep.
He needs all that revenue for his spending spree.
You know, he,
he proposed close to 2 to $3 trillion in new spending.
- [Narrator 1] The Answer is,
to help pay for the president's infrastructure proposal.
- [Narrator 2] According to a treasury department report
on Biden's made in America tax plan,
7 of the top 10 locations for US multinational companies
were in countries that applied much lower taxes.
For example,
Bermuda holds 10% of all reported
US multinational foreign profit.
- Currently we have the physical presence standard in place,
and that basically means that a company gets taxed wherever
its, you know, its physical headquarters are.
And so Facebook and Google and Amazon and others, you know,
they're based in the US so they'll get taxed here.
And with the new Pillar One proposal,
some of those taxing rights would be given
to other nations
where the users of those companies are located.
The reason for that is that under the new OECD proposal,
they say that the value of those companies is not, you know,
created when they're in the US,
and their headquarters and their manufacturing,
or they're developing new apps and new programs
and new services that people then can use,
But the value is rather being created
by the user in those countries.
So the user is adding the value to the company
and not the company who develops those services.
- [Narrator 2] Grover Norquist,
president of Americans for tax reform said,
cartels that keep prices high, hurt consumers,
creating a tax OPEC of governments to avoid tax competition
is bad for citizens and taxpayers.
Competition drives out self-serving rent-seekers in business
and in government.
Putting a floor on the cost of the government
is like putting a floor on the cost of oil or wheat,
bad for consumers.
Why create a new OPEC?
that's right, That's exactly right.
A new cartel,
a group of big countries with the purpose of maintaining
prices at a high level and restricting competition.
This agreement would significantly damage
the valuable tax competition among countries
and would cause harm
to businesses, workers and economies around the world.
A global minimum tax would greatly diminish
the force of tax competition.
This competition is not only good,
but also necessary because it offers a critical check
on the power of governments.
And it is vital for ensuring efficient
and reasonable levels of taxation.
But there's another aspect of this competition
that we care about.
that of the consumer.
If governments start imposing a global minimum tax,
it will devastate many small businesses
many large companies are happy with the global tax rates
suggestion because first,
they can afford it,
and second,
they can impose the extra costs
on their larger consumer bases.
Small businesses cannot do that.
- So there could be countries like China
and others that might take advantage
of the new walls and say, well,
if we fundamentally change things,
then why can't we have a user tax for
everyone who drives a car on Chinese roads?
Why can't we have a user tax for everyone
who uses an iPhone in China?
And so this is very, very shortsighted,
and it's very, very dangerous because you,
those new rules, you know,
could be flipped around to your disadvantage in a longterm.
It's all about the narrative and the narrative
they can push.
And especially the European Union is very,
very good at identifying a narrative
that works with citizens,
even though it might not be true at all.
So for example, they, they push the narrative that,
you know,
American multinationals are not paying their fair share.
So they didn't even say what fair share is.
And it's very subjective and people might disagree on what
is fair, but they say, they're not paying their fair share.
So, so we looked actually at the,
at the effective corporate tax rates of those companies
and compared them to the effect
of corporate tax rates of other
European digital companies,
and also non-digital companies.
It turns out,
that American multinationals often pay a higher,
effective corporate tax rates than non-digital
or digital companies.
So that narrative is not true.
And again,
the same applies here with the tax Haven,
so-called tax havens.
Those countries are not tax havens.
They just decide because they're sovereign nations.
They just decide that the way they want to run their country
and economy is maybe with a smaller government,
maybe more efficient and with low tax rates.
So they attract other businesses
and they can push their economy that way.
Currently we have the physical presence standard in place.
And that basically means that a company gets taxed wherever
its physical headquarters are.
And so Facebook and Google and Amazon and others, you know,
they're based in the US so they'll get taxed here.
This is why it's so dangerous
because it's a very short-sighted proposal
that might create revenue for some
European and other nations in the short term,
but in the longterm,
no one really knows if we change
those fundamental principles,
long standing principles,
what will happen to companies that are located in the US
or in Europe that are currently not under this proposal.
And so there,
there could be countries like China and others that might
take advantage of the new rules and say, well,
if we fundamentally change things,
then why can't we have a user tax where everyone who drives
a car on Chinese roads?
Why can't we have a user tax for everyone
who uses an iPhone in China?
- [Narrator 1] It is indeed a short-sighted policy,
but the European Union will tell us otherwise,
do you remember the European commission's legal battle
with apple?
It is not over.
The EU is not happy with big companies operating in Europe.
As the discussion continues,
we should keep an eye on these types of tax policies.
In the end, we consumers pay the price for governments,
bad decisions, not them.
- [Narrator 2] You know the cost of freedom
is eternal vigilance.
Do you agree with this minimum global tax rates suggestion?
And your opinion, would it hurt or help consumers?
let us know what you think in the comments.