Prime Minister Justin Trudeau said he’s open to talks on global tax reform after U.S. Treasury Secretary Janet Yellen called this week for a global minimum corporate tax rate.
Ms. Yellen said she is urging her Group of 20 nation colleagues to support the move as a way of ending a “race to the bottom” on corporate taxes as countries around the world steadily lowered rates over the past few decades in the hunt for a competitive edge.
The U.S. call for a global minimum corporate tax rate is coupled with President Joe Biden’s proposal to raise the U.S. federal corporate tax rate to 28 per cent from 21 per cent. The move, which must still be approved by Congress, would partially reverse a 2017 decision by the former Trump administration to lower the rate to 21 per cent from 35 per cent.
Finance ministers and central bankers of the Group of Seven and G20 are meeting virtually this week. In a budget last month, Britain announced its first corporate tax hike in decades, pledging to increase the rate to 25 per cent from 19 per cent.
During a news conference Tuesday, Mr. Trudeau was asked what Ms. Yellen’s push for a harmonized corporate tax rate means for Canada.
The Prime Minister said G7 and G20 nations will be talking over the coming months about how the world can “come back stronger everywhere” once the COVID-19 crisis is over.
“There’s a lot of lessons that we’ve learned from this pandemic that we’re going to be able to talk about all together and we’ll be open to hearing various proposals on how to make sure that growth is inclusive, that opportunities are there for everyone around the world,” he said. “Canada will always look to ensure that we are competitive with other countries around the world in terms of taxes.”
The federal tax rate on large corporations is 15 per cent in Canada. Provinces also collect corporate taxes, with rates varying from a low of 8 per cent in Alberta to a high of 16 per cent in Prince Edward Island.
The Liberal government’s fall economic statement last November reiterated Canada’s support for a new deal on international taxation, which has been the subject of discussion for years among members of the Organization for Economic Co-operation and Development. The update expressed Canada’s concern about the lack of consensus and said Ottawa would act on its own in 2022 with a tax on corporations providing digital services if no global deal is reached. The update provided few details, but said this move could generate $3.4-billion in revenue over five years.
The NDP, which the minority Liberal government frequently relies upon for votes on spending matters, has long called for a corporate tax hike and stronger efforts to fight tax evasion. NDP finance critic Peter Julian said Tuesday that the Biden administration’s proposals are favourable and that Ottawa should follow suit in the April 19 budget. The Liberals have not announced any plans to alter the federal corporate tax rate. Conservative finance critic Ed Fast said his party supports international efforts to fight tax avoidance.
A White House summary of the Biden tax plan says the U.S. minimum tax on U.S. corporations would be calculated “on a country-by-country basis so it hits profits in tax havens.”
The corporate tax hikes in the U.S. and Britain are being presented as an effort to raise billions in revenue to help offset the cost of pandemic-related support programs and stimulus spending.
However, many economists have challenged the assertion that higher corporate tax rates inevitably lead to higher tax revenues.
The claim was described as “questionable” in a report last year by tax lawyer Jeffrey Trossman for the Canadian Tax Foundation. Canada’s corporate tax rate steadily declined during the period from 1980 to 2015, yet research found corporate tax revenues did not follow the same downward trend.
“The evidence does not support the assumption … that higher headline [corporate income tax] rates will produce more corporate tax revenue for governments,” the report stated.
In response to Ms. Yellen’s comments, International Monetary Fund chief economist Gita Gopinath told reporters Tuesday that the IMF has long favoured a global minimum tax on corporate profits.
In an online briefing, she said the current disparities in corporate tax rates had triggered “a large amount” of tax shifting and tax avoidance, reducing the tax base of governments.
“It is a big concern,” she said. “We are very much in favour of a global minimum corporate tax.”
French Finance Minister Bruno Le Maire said Tuesday that he welcomed Ms. Yellen’s proposal and that a global deal on cross-border taxation was within reach.
– With a report from Reuters
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