G-20 Corporate Tax Compact Would Fork Over Cash to American Coffers

The heads of the world’s largest economies gathered in Rome to chow down on carbonara loaded with pepper-spiked guanciale and nibble elegant amaretti sprinkled with cinnamon.

Sorry, it’s hard to not get distracted by the thought of Italian food. The Group of 20 leaders did announce a groundbreaking deal this weekend that cracks down on corporate tax havens and redirects billions back to rich countries, where businesses have dined and dashed for years by setting up shell companies outside of the national trattoria.

Art of the Steal

The digital age has turned offshore tax dodging — which the Tax Justice Network says costs governments around the world $245 billion every year — into an art form.

Companies use the internet to record sales in places where they have little to no presence, then set up networks of incorporated entities to stow profits from those sales offshore. For example, an Irish subsidiary of Microsoft — that has zero employees — paid nothing on $315 billion in profit last year because it was set up as a tax resident of Bermuda. This trick, called the “double Irish,” stashes profits two countries away from Microsoft’s US home base.

The G-20 proposal would end that by 1) introducing a minimum global tax rate of 15% on the profits of corporations with $865 million or more in annual revenue, and 2) mandating tax revenues stay in the countries where the sales were made.

The early analysis says the plan would make a huge difference at home and abroad:

• The OECD estimates the 15% tax rate would generate $150 billion in global tax revenue per year.
• The US would take in 15 times more than China would thanks to the changes.

Choke Point: To become a reality, participating countries have to pass their own legislation. That includes the American Senate, where there’s more intrigue than the one in Ancient Rome. Buon appetito!