International corporate tax reform is coming closer if countries can set aside their differences and work for progress rather than the perfect deal. Continue reading to learn more about proposals for setting a fair global minimum corporate tax that could generate billions for governments while reducing the incentives for using tax havens.
This article discusses how the debate around international tax reform has shifted from solely focusing on digital taxation to including plans for a global minimum corporate tax rate. Such a rate could curb tax avoidance by large multinational companies and significantly increase government revenues. At a meeting of the Organisation for Economic Co-operation and Development (OECD), countries presented proposals for setting a floor on corporate statutory tax rates to prevent taxes being too low in certain jurisdictions.
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Achieving broad global agreement on corporate taxation hasn’t been easy. National priorities and political rigidities stymie the ability to reach common ground, but recent reports that the G7 countries have agreed to a 15% minimum global tax rate indicate that progress is possible. In this insightful analysis, issued just days before the G7 announcement, policy expert Rebecca Christie offers business professionals some important highlights of the OECD’s tax plan.
- Opinions differ on ways to increase global corporate tax revenue.
- The OECD has adopted a dual approach to a taxation arrangement.
- Collaboration is the prudent way to achieve global tax justice.
Opinions differ on ways to increase global corporate tax revenue.
The OECD’s 2015 Base Erosion and Profit Shifting (BEPS) tax information database was a substantial step forward in combating corporate profit shifting from high- to low-tax countries. Efforts, though, were fragmented, as national governments separately sought transnational tax revenue bonanzas from the likes of tech giants Microsoft, Facebook, Apple and Amazon.
“The tax talks are a clear case of how joint action, even on a modest scale, can be more powerful than a hodgepodge of efforts to crack down on – or attract – companies who want to avoid high tax bills and have the time and resources to figure out how.”
The OECD broadened the focus to encompass the largest, most profitable firms. The idea is to obligate companies with earnings in places where they have no brick-and-mortar presence “to pay taxes somewhere on those profits.” The change allows for better cross-national cooperation.
The OECD has adopted a dual approach to a taxation arrangement.
The first aspect addresses the source of profits in countries where firms lack a physical presence, such as advertising and direct-to-customer internet services and sales. This appeals to countries with an existing digital-service tax. Some nations have already agreed to replace their national-level rules with the global agreement.
“Any kind of international deal would still be a step forward. The big companies themselves seem to recognize this, calling for clarity and tax certainty rather than opposing the effort.”
The second part seeks to establish an international minimum corporate tax rate and to ensure that companies pay taxes on all their subsidiaries’ profits. This approach could yield the most national income, but it faces challenges. For example, industry-specific tax incentives in some EU member countries, like Poland and France, would need exemptions in a global agreement.
Home to almost all the world’s technology behemoths, the United States introduced a tax – riddled with exceptions – on global intangible low-taxed income (GILTI) at the same time that the Trump administration implemented large corporate tax cuts. The administration also conducted trade investigations of EU countries that established or considered any type of digital service tax. Under the Biden administration, however, the United States has rejoined the OECD negotiations and ended the “safe harbor” that would have exempted US tech firms from global tax accords.
Collaboration is the prudent way to achieve global tax justice.
The OECD’s 2020 analyses estimate a total increase in worldwide tax revenue of between $50 billion and $80 billion, most of it to be collected under a minimum 15% corporate tax.
“The OECD momentum is a welcome turn of events that should not be sacrificed at the altar of the ideal outcome.”
Though not without tensions among the parties, the OECD talks have made progress, and a successful result would advance the goal of achieving tax justice for all parties.
About the Author
Rebecca Christie is a nonresident fellow at Bruegel.
Read the full article: International tax debate moves from digital focus to global minimum