Finance:Minimum corporate tax rate

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Short description: Proposed international tax scheme
OECD plan to set a global minimum corporate tax rate of 15%
  •    Initial signatories
  •    Subsequent signatories
  •    Non-signatories
  •    Not members of the inclusive framework (unable to sign)

An international minimum corporate tax rate is a proposal to reduce tax competition between countries and the avoidance of corporate taxes.

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.[1][2][3] The committee's proposal, of a 30% minimum tax,[1] was however not implemented.[4]

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.[5] The OECD formed a group, called Inclusive Framework,[6] that has since been exploring a minimum tax rate among its member states.[7]

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.[8] 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.[8] 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.[8]

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".[6] 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.[9]

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 Mair 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%.[10]

On 1 July 2021, 130 countries backed an OECD plan to set a global minimum corporate tax rate of 15 per cent.[11]

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. French Finance Minister Bruno Le Maire called it "the most important international tax agreement in a century."[11]

See also

References

  1. ↑ 1.0 1.1 "Tax havens cost governments $200 billion a year. It’s time to change the way global tax works" (in en). https://www.weforum.org/agenda/2020/02/how-do-corporate-tax-havens-work/. "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." 
  2. ↑ Ruding, Onno (1992). "Report of the Committee of Independent Experts on company taxation. Executive summary. March 1992". p. 13. http://aei.pitt.edu/8702/. "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" 
  3. ↑ Devereux, Michael (1992). "The Ruding Committee Report: An Economic Assessment". Fiscal Studies 13 (2): 96–107. ISSN 0143-5671. https://www.jstor.org/stable/24437292. 
  4. ↑ 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. pp. 188. ISBN 978-0-7506-8371-5. OCLC 123910129. https://mpra.ub.uni-muenchen.de/107/. "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." 
  5. ↑ OECD (2020-10-12). "International community renews commitment to address tax challenges from digitalisation of the economy". https://www.oecd.org/tax/beps/international-community-renews-commitment-to-address-tax-challenges-from-digitalisation-of-the-economy.htm. 
  6. ↑ 6.0 6.1 "OECD/G20 Inclusive Framework on BEPS. Addressing the Tax Challenges Arising from the Digitalisation of the Economy. Highlights". OECD: 3. https://www.oecd.org/tax/beps/brochure-addressing-the-tax-challenges-arising-from-the-digitalisation-of-the-economy-october-2020.pdf. "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”.". 
  7. ↑ Rushe, Dominic (2021-04-05). "Janet Yellen calls for global minimum corporate tax rate" (in en-GB). The Guardian. ISSN 0261-3077. https://www.theguardian.com/business/2021/apr/05/janet-yellen-global-minimum-corporate-tax-rate. 
  8. ↑ 8.0 8.1 8.2 Bundesfinanzministerium (German Federal Ministry of Finance) (2019-05-08). "A minimum tax will ensure greater fairness in international tax law". https://www.bundesfinanzministerium.de/Content/EN/Reden/2019/2019-05-08-speech-150-DTA.html. 
  9. ↑ "US participation in OECD talks leading to simpler digital tax rules, says OECD official" (in en-gb). https://www.internationaltaxreview.com/article/b1qz94h6tgk2yx/us-participation-in-oecd-talks-leading-to-simpler-digital-tax-rules-says-oecd-official. 
  10. ↑ "G7 agrees 'historic' global minimum corporate tax rate". Deutsche Welle. June 6, 2021. https://www.dw.com/en/g7-agrees-historic-global-minimum-corporate-tax-rate/a-57786417. 
  11. ↑ 11.0 11.1 "130 countries back OECD plan to set global minimum corporate tax rate". Canadian Broadcasting Corporation. 1 July 2021. https://www.cbc.ca/news/business/oecd-corporate-tax-rate-1.6087464. 

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