Global minimum corporate tax rate

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OECD plan to set a global minimum corporate tax rate of 15%
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The global minimum corporate tax rate, abbreviated GMCT or GMCTR, is an agreement between national leaders which proposes to reduce tax competition between countries and the avoidance of corporate taxes by setting a world-wide minimum corporate tax rate. Agreement on a rate of 15% was signed by country leaders on 30 October 2021,[1] and is expected to be subsequently confirmed by parliaments.[2]

History[]

In 1992 a minimum corporate tax rate was proposed on a regional scale for the European Union member states. The proposal was made by the Ruding Committee in 1992, a European Commission expert panel led by Onno Ruding.[3][4][5] The committee's proposal, of a 30% minimum tax,[3] was however not implemented.[6]

In 2019, the OECD, an intergovernmental association of mostly rich countries, began proposing a global minimum corporate tax rate. It argued that the increasing global economic significance of digital products and services requires an update to taxation rules to prevent companies from shifting profits to jurisdictions with a lower corporate tax rate.[7] The OECD formed a group, called Inclusive Framework,[8] that has since been exploring a minimum tax rate among its member states.[9]

In May 2019, Germany and France published a joint proposal for a global minimum effective tax rate named Pillar Two, with the goal of stopping the race to the bottom.[10] Olaf Scholz, then-German Federal Minister of Finance, called the fair taxation of companies one of the main priorities of Germany's presidency of the OECD’s Committee on Fiscal Affairs and said that if no agreement can be reached within the OECD, the EU is prepared to take action unilaterally.[10] This Franco-German proposal received wide international support, and both the then-IMF Managing Director Christine Lagarde as well as the then-OECD Secretary-General Angel Gurría endorsed it.[10]

In 2020, the group's then 137 member states called the blueprint for Pillar Two "a solid basis for a systemic solution that would address remaining base erosion and profit shifting (BEPS) challenges".[8] The United States joined the talks of the OECD/G20 group on (tax-) Base Erosion and Profit Shifting in 2020, and in April 2021, Janet Yellen, the United States Treasury Secretary, agreed with the Franco-German proposal.[11]

In June 2021, a meeting of the Group of Seven finance ministers in the leadup to the 2021 G7 Summit endorsed a global minimum corporate tax rate of at least 15% on the 100 largest multinational companies to disincentivize a race to the bottom by countries to attract such multinationals. French Finance Minister Bruno Le Maire described the 15% threshold as a starting point that could be raised in the future. Yellen described the pledge as positive for the world economy by leveling the playing field and encouraging positive competition. The chief executive of the Tax Justice Network said that the deal was historic, but unfair and should have been at least 25%.[12] Liu Kun, China's Minister of Finance, said in 2021 that the planned agreement would help create a "fair and sustainable" international tax system.[13]

On 1 July 2021, 130 countries backed an OECD plan to set a global minimum corporate tax rate of 15 per cent.[14]

On 8 October 2021, the EU members Republic of Ireland, Hungary, and Estonia agreed to the agreement with the condition that the 15% tax rate will not be raised.[15] Finance ministers are expected to finalise the agreement, and country leaders expected to sign it at a summit in Rome at the end of October.[1] It then has to be approved by the signatory countries' parliaments.[2]

It is a worldwide effort to keep multinational firms from dodging taxes by shifting their profits to countries with low rates. The agreement is an attempt to address challenges presented by a globalized and increasingly digital world economy in which profits can be relocated across borders and companies can earn online profits in places where they have no taxable headquarters.[14] French Finance Minister Bruno Le Maire called it "the most important international tax agreement in a century."[16]

Criticism[]

University of California, Berkeley professor Gabriel Zucman applauded the OECD efforts to eliminate corporate tax havens, but criticized the proposed minimum tax rate of 15%, a rate lower than the average combined federal and state income tax rates paid by individual Americans. In Zucman's opinion, a 15% minimum rate would be too small, and recommended raising the minimum rate to 25%, since large corporations could afford the higher minimum rate.[17]

See also[]

References[]

  1. ^ a b Rappeport, Alan; Alderman, Liz (2021-10-08). "Global Deal to End Tax Havens Moves Ahead as Nations Back 15% Rate". The New York Times. ISSN 0362-4331. Retrieved 2021-10-09.
  2. ^ a b "The world in brief, October 9th 2021". The Economist. 2021-10-08. Retrieved 2021-10-09.
  3. ^ a b "Tax havens cost governments $200 billion a year. It's time to change the way global tax works". World Economic Forum. Retrieved 2021-04-05. Let's start with the easiest: corporate tax harmonization. If countries could agree on a global minimum corporate tax rate of say 25%, the problem of profit shifting would largely disappear, as tax havens would simply cease to exist. This was already suggested by the EU Commission’s Ruding Committee in 1992, which proposed a minimum EU corporate tax rate of 30%. Skeptical readers might have a hard time seeing tax havens such as Malta, Hong Kong or Luxembourg agree to this and kill a major revenue source. And the failure of any global agreement suggests that these readers are right.
  4. ^ Ruding, Onno (1992). "Report of the Committee of Independent Experts on company taxation. Executive summary. March 1992". aei.pitt.edu. p. 13. Retrieved 2021-04-05. So at this stage in the Community's development, action should concentrate on the following priorities: (...) (b) setting a minimum level for statutory corporation tax rates and also common rules for a minimum tax base, so as to limit excessive tax competition between Member States intended to attract mobile investment or taxable profits of multinational firms, either of which tend to erode the tax base in the Community as a whole
  5. ^ Devereux, Michael (1992). "The Ruding Committee Report: An Economic Assessment". Fiscal Studies. 13 (2): 96–107. ISSN 0143-5671.
  6. ^ Nicodeme, Gaetan (2007). "Corporate Tax Competition and Coordination in the European Union: What do we know? Where do we stand?". International taxation handbook : policy, practice, standards and regulations. Colin Read, Greg N. Gregoriou (1st ed.). Oxford: CIMA Publishing. p. 188. ISBN 978-0-7506-8371-5. OCLC 123910129. The next step took place in 1992 when the committee chaired by Onno Ruding had the mandate to look whether differences in corporate taxes distorted investment decisions. The committee proposed some minimum standards in corporate tax bases and a band for tax rates between 30% and 40%. Nevertheless, the proposal was not followed by political action either.
  7. ^ OECD (2020-10-12). "International community renews commitment to address tax challenges from digitalisation of the economy". Retrieved 2021-07-01.
  8. ^ a b "OECD/G20 Inclusive Framework on BEPS. Addressing the Tax Challenges Arising from the Digitalisation of the Economy. Highlights" (PDF). OECD: 3. The 137 members of the OECD/G20 Inclusive Framework recognised the Blueprint on Pillar One as a “solid foundation for future agreement that would adhere to the concept of net taxation of income, avoid double taxation and be as simple and administrable as possible”, and that the report on the Blueprint on Pillar Two is “a solid basis for a systemic solution that would address remaining base erosion and profit shifting (BEPS) challenges”.
  9. ^ Rushe, Dominic (2021-04-05). "Janet Yellen calls for global minimum corporate tax rate". The Guardian. ISSN 0261-3077. Retrieved 2021-04-05.
  10. ^ a b c Bundesfinanzministerium (German Federal Ministry of Finance) (2019-05-08). "A minimum tax will ensure greater fairness in international tax law". Retrieved 2021-07-01.
  11. ^ "US participation in OECD talks leading to simpler digital tax rules, says OECD official". International Tax Review. Retrieved 2021-04-05.
  12. ^ "G7 agrees 'historic' global minimum corporate tax rate". Deutsche Welle. June 6, 2021. Retrieved June 7, 2021.
  13. ^ "China says it will continue to work for 'fairer' global minimum tax rate". South China Morning Post. 2021-07-31. Retrieved 2021-10-09.
  14. ^ a b "130 countries back OECD plan to set global minimum corporate tax rate". Canadian Broadcasting Corporation. 1 July 2021. Retrieved 2 July 2021.
  15. ^ "Ireland and other holdout countries agree on pillar two at 15%". International Tax Review. Retrieved 2021-10-08.
  16. ^ "OECD says 130 countries agree to 15 percent minimum corporate tax rate". France 24. 2021-07-01. Retrieved 2021-12-12.
  17. ^ "Top Economist Warns 15% Global Minimum Tax on Corporations Is 'Way Too Low'". Common Dreams. 7 July 2021. Retrieved 11 October 2021.

External links[]

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