15 per cent global minimum corporate tax rate
A new proposal for a 15 per cent global minimum tax rate by 2023 has been approved by the G20 finance ministers.
The objective is to allow countries to compete on economic fundamentals rather than tax rates, discouraging businesses from seeking tax havens to filter revenue.
France’s Finance Minister Bruno Le Maire says “We are putting an end to tax optimisation and the digital giants will finally pay their fair share of tax. This is the biggest tax revolution in a century”.
Low company tax rates allow countries to stay competitive, encourage international investment and keep local business and money in the country. However, a competitive push to the bottom can hamper a governments ability to build infrastructure and support education while fostering corporate desire for tax evasion.
A 15% floor is low enough for countries to be globally competitive (Singapore’s standard corporate tax rate is 17%) and attract investment, but high enough to be a ‘line in the sand’ that reduces pressure on unwealthy nations to become tax havens for large corporates.
The proposal will however be exceedingly difficult to implement.
Not every country in the world will be a part of the scheme and so for the proposal to work, G20 countries would have to legislate to tax the 15% to companies’ foreign earnings if the earnings come from low tax countries.
Three EU countries have already rejected the proposal.