The global minimum tax agreement

A “historic deal”

On June 5, the G7 reached an agreement: a) to impose a global minimum tax of 15% on the largest corporations; b) a portion of these corporations’ global profits will be clawed back to countries where they do business, regardless of the location of their physical headquarters.

Leaving questions about administrative feasibility aside, the new agreement might face two opposing objections. Tax-justice advocates will criticize the global minimum of 15% as too low, while many developing countries will decry the global minimum as an unwarranted restriction that will impede their ability to attract investment. The deal struck by the G7 appears to reflect both sets of concerns: the low threshold could assuage developing countries’ concerns, while the global apportionment of profits will enable high-tax jurisdictions to recoup some of their lost revenues.[…] The balance between global rules and national sovereignty may have been struck appropriately in this instance.

The G7 Tax Clampdown and the End of Hyper-Globalization
By: Dani Rodrik

15% is too low!

Barake et al., in this paper, consider several scenarios with different tax rates. In particular, they look at the impact on European public finances of a 25% minimum tax rate:

In the largest EU countries, according to our estimates, corporate tax revenues would generally increase by 30% to 50%: 42% in Germany (an increase of €29 billion per year), 51% in France (€26 billion), 44% in Spain (€12.5 billion) and close to 30% in Italy (€11 billion).

On the contrary, a low minimum rate of 15% would generate only €50 billion in the European Union, around a quarter of what could be achieved with a 25% minimum tax rate.

In addition, they argue, contrary to a widely held view, to be effective a minimum tax does not require an agreement of all the world’s countries:

Concretely, because the vast majority of multinationals are headquartered in large economies, lawmakers in Rome, Berlin, Paris, and Washington D.C. can whistle the end of the game by collecting the tax deficit of their own multinationals—offsetting the low taxes paid in tax havens by higher taxes owed at home. The spiral of international tax competition can be stopped even if tax havens do not increase their tax rates, and the European Union could be the world leader in this process.

Collecting the tax deficit of multinational companies: Simulations for the European Union
Authors: Mona Barake, Theresa Neef, Paul-Emmanuel Chouc, Gabriel Zucman
From: The European Tax Observatory