Over two years have passed since more than 135 countries signed up to the idea of a global minimum corporate tax rate for big multinationals. This week, a critical mass of several dozen countries, including many of the world’s largest economies, has begun to apply the new rules. Even though the US and China are not among them, this is a big step forward in ending the “race to the bottom” on corporate taxation, and the disruption to fair global commerce caused by tax havens. It also provides a potential model for other initiatives to be adopted by coalitions of the willing.
From January 1, countries including all of the EU, the UK, Australia, South Korea, Japan, Canada and Norway are applying an effective tax rate of at least 15 per cent on profits of multinational companies with annual revenues exceeding €750mn. Several countries long viewed as havens by international business are taking part, including Ireland, Luxembourg, the Netherlands, Switzerland and Barbados.
A series of interlocking rules, expanding over time, means that if a big company is taxed below the global minimum in one country, other countries can charge a top-up tax levy — so neither the tax haven nor the company benefits from the lower rate. That creates a robust incentive for non-participating nations to join up, or watch other countries collect tax at their expense. The OECD, the driving force behind the initiative, estimates it will increase global annual tax revenues by up to $220bn, or 9 per cent — vital extra proceeds for governments struggling to fund ever-expanding needs from public services to defence.