Economy & Business European Union Financial Regulation Politics & Diplomacy

Report

September 16, 2021

International corporate tax reform: Transatlantic cooperation after the OECD-deal

By Ben Judah and Shahin Vallée

Addressing the international tax system—and the efforts to avoid taxation—is a focus for policymakers around the world and in the United States. As the Biden administration targets tax avoidance with a historic 130 country OECD proposal, a joint Europe Center-German Council on Foreign Relations report argues the Biden administration will have to take a more assertive strategy when it comes to Europe to ensure the agreement is not undermined or hollowed out.

There is a unified vision for global tax reform on paper. The recent Group of Seven and 130-country Organisation for Economic Co-operation and Development agreement commits countries to establish a global minimum corporate tax of 15%. The agreed regime sets an important standard building a more equitable tax regime and limit tax avoidance by large corporations, which the IMF reports surmounts to over $650 billion annually.

Reaching the deal itself was not simple. Implementing the agreement will be even more difficult—especially in Europe. Any new tax system will require serious reform across the world but notably in Europe as any agreement will require significant changes in European tax systems. But the issue of tax competition and tax avoidance has been a source of contention in the transatlantic alliance

To shape effective global corporate tax reform and promote a global tax reform effort, Europe Center nonresident senior fellow Ben Judah and German Council of Foreign Relations Head of Geo-Economics Program Shahin Vallée write the Biden administration must create a more assertive strategy to avoid reform from being extinguished global politics. Policymakers specifically should:

• Build a coalition of like-minded countries
• Improve disclosure standards and enforcement 
• Name and shaming countries involved in tax manipulation
• Use joint diplomatic pressure
• Enforce diplomatic restrictions if not action is taken
• Wield national security tariffs and taxes 

A successful international tax deal will prove to be critical for the Biden administration’s global standing and ability to tackle divisions across the Atlantic.