Any project for introducing a worldwide global minimum tax is likely to meet opposition from countries, like Ireland, that used low corporate tax rates to attract business.
Plans for the introduction of a global corporate minimum tax were boosted in April by the administration of the new US President Joe Biden. In a public speech, US Treasury Secretary Janet Yellen advocated an end to the “30-year race to the bottom on corporate tax rates”; but such an agreement would face a long and bumpy road.
Since 2013, the Organization for Economic Cooperation and Development and the G20, an organization of leading economies, have discussed the base erosion and profit shifting initiative, trying to figure out how to reverse the historic decline in corporate tax collection. A globalized economy gave large international corporation the chance to move headquarters to countries offering the friendliest tax regimes. At the same time, online sales complicated the issue of how to tax profits based on jurisdiction—should it be where the buyer resides, or the seller?
According to the Tax Foundation policy center, the worldwide average statutory corporate tax has been almost halved, from approximately 40% in the 1980s to about 24% in 2020.
Any project for introducing a worldwide global minimum tax is likely to meet opposition from countries, like Ireland, that used low corporate tax rates to attract business. The level at which a global minimum tax would be set is, of course, another key point of contention.
“An agreement of this nature would be unprecedented and lay down an important marker for the future of international corporate taxation,” notes Jeff Goldstein, director of strategy and consulting at Fidelity Investments, in an opinion piece published by the Atlantic Council think tank. “Given the trend of decreasing corporate taxation, the scale of lost revenues, and the need for resources as the world tackles challenges such as climate change and recovery from the Covid-19 pandemic, complexity and potential imperfection should not prevent action.”