TORONTO — Canada is likely to benefit from the U.S. government's decision to campaign for a global minimum on corporate tax rates, experts said Monday after a major speech by U.S. Treasury Secretary Janet Yellen in which she expressed her support for the measure.
In a speech outlining the economic priorities of President Joe Biden's priorities for the United States, Yellen repeatedly emphasized the need for collaboration to resolve global problems. She said one consequence of an interconnected world has been "a 30-year race to the bottom on corporate tax rates" and the U.S. administration would work with the Group of 20 countries, including Canada, to end that race to the bottom.
New York-based tax expert Paul Seraganian said governments in Canada, the U.S., Europe and elsewhere will all benefit if they can work together on reforms to the global tax system that prevent corporations from playing one country off against another by threatening to change locations.
"I think it's good for Canada to be in the pack ... and part of the team, as it were," said Seraganian, managing partner at the U.S. office of Osler, Hoskin & Harcourt LLP, a major Canadian law firm.
Work towards a global minimum tax has been creeping forward for several years under the guidance of the OECD club of developed countries.
"You could have a hearty debate about whether (a global minimum corporate tax) is net good or net bad for Canada as a standalone concept. And, in fact, that debate's been going on among OECD countries for quite some time now," Seraganian said.
"The real threat, I think, would be to fall out of the group ... Canada's interests, I think, lie with being in sync with its major trading partners."
The Canadian government appears to agree.
"It is only fair, and Canadians expect, that businesses pay their fair share of tax on revenue booked in Canada and around the world," said Katherine Cuplinskas, press secretary for Finance Minister Chrystia Freeland.
"Canada will continue to work with the G7, the OECD and other international organizations to ensure we have a fair and sustainable tax base."
Ottawa-based Toby Sanger, a director of Canadians for Tax Fairness and part of an independent commission for reform of international taxation, said a global minimum corporate tax was part of a Trump Administration package of reforms but work was stalled by the pandemic and other factors.
Echoing Yellen's words, Sanger agreed there has been a global race to the bottom on corporate tax rates.
"And that's partly because, you know, there's been a bit of a turning of a blind eye to a lot of tax avoidance through tax havens," Sanger said.
Canada probably loses about $10 billion in tax revenue each year because of these tax strategies, although the exact figures aren't available, Sanger added.
He said even very conservative bodies such as the International Monetary Fund have called for a fairer international tax system.
Seraganian said that it's difficult, at this point, to know how a reformed tax system will turn out but he's sure the real aim of the governments will be to control big multinational corporations' ability to "park a lot of their profits outside the reach of their home juriscition."
In Janet Yellen's first major international policy speech as U.S. Treasury Secretary, the former chair of the U.S. Federal Reserve said the Biden administration is committed to restoring American leadership in the multilateral system.
Yellen's remarks came as representatives from the United States, Canada and other countries prepare for this week's meetings of the International Monetary Fund and the World Bank, two of the major organizations that co-ordinate the global economic system.
G20 finance ministers and central bank governors will gather virtually on Wednesday
This report by The Canadian Press was first published April 5, 2021.
David Paddon, The Canadian Press