Minimum corporate tax rate

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

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]

• Tax competition, which may lead to a race to the bottom between countries
• List of countries by tax rates for a comparison of corporate tax rates around the world, and Tax rates in Europe for just the continent
• Corporate haven, a country with low effective corporate taxation
• World taxation system
• International taxation

0.00 (0 votes)