For several years, governments around the world have been meeting at the OECD to reform the international corporate tax system. Not surprisingly, success hasn’t come quickly. This isn’t an easy task — but it remains a critical one. As the world economy seeks to recover from the global pandemic and governments face new fiscal pressures, an agreed solution is needed now more than ever to ensure a durable framework for cross-border trade and investment.
Tomorrow’s meeting of G20 finance ministers represents an important opportunity to give this process new momentum. For the new Biden Administration, the meeting represents a chance to underscore its commitment to the OECD-led multilateral process and to fair, comprehensive, and coordinated changes to corporate tax policies. And it represents an equally important opportunity for finance ministers from France, the UK, India, Indonesia, and other leading economies to commit to end the headlong rush to discriminatory tax measures that we’ve seen in recent years and work with the U.S. on a durable agreement.
The central question is less about how much corporate income tax companies pay than where they pay it. For Google’s part, our effective tax rate over the past decade has exceeded 20% of our profits, in line with average statutory tax rates. While we’re one of the largest corporate taxpayers in the world, roughly 80% of our corporate income tax has been due in the United States, where Google was founded and where most of our products are developed. The concentration of our tax obligations in our home market mirrors many other multinational companies spanning various industries and countries; foreign firms operating in the U.S. and other countries, for example, also pay the majority of their corporate income taxes in their home countries.
These tax practices are the product of international rules — specifically, international tax treaties that historically have attributed a smaller share of profits to the countries where products and services are consumed, leaving the bulk of taxing rights to the countries where products and services are created.
We have long supported efforts to update international tax rules to arrive at a system where more taxing rights are shifted to countries where products and services are consumed. So, U.S. exports, including a range of technologies, might incur more income tax abroad, while foreign companies exporting to the U.S. would pay more to the U.S. public purse. Like any good agreement, this will require a healthy amount of give-and-take.
Unfortunately, in the absence of multilateral consensus, the world has seen the growth in recent years of taxes targeted at foreign companies. Most prominently, we have seen the growth of so-called “digital services taxes” that aim to raise revenue from a small subset of firms, narrowly defined by revenue thresholds and business models. This selective approach has sparked tensions between the U.S. and some of its allies, pushing countries toward trade disputes that could further damage fragile economies.
Some of the countries imposing these targeted taxes claim they help build momentum for broader international tax reform. But these digital services taxes are complicating efforts to reach a balanced agreement that works for all countries – they’re simply laying claim to income that would otherwise be taxed in the U.S. We encourage these governments to roll back what are essentially tariffs or, at a minimum, suspend them while negotiations continue.
The next few months will test commitments countries have made to reinvigorate international cooperation. Left on the current trajectory, tax discord could quickly yield beggar-thy-neighbor protectionism that would weaken cooperation on many issues. But serious steps forward — starting with the rescission or suspension of existing unilateral taxes — could create new momentum for multilateralism, supporting collaboration on many other important fronts. We urge countries to work together on this critical project, building a firmer foundation for international cooperation in the 21st century.