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Agreement reached on global minimum corporate tax rate - expert comment

Dr Lucie GadenneDr Lucie Gadenne of Warwick Economics and CAGE comments on the announcement that the world's leading economics have agreed to apply a minimum corporate tax rate.

"130 countries have agreed to a plan to force multinational companies to pay a global minimum tax rate under the auspices of the OECD. This is great news, and more significant than last month's agreement at the G7 level. The richest economies agreeing on principle in London was a step forward, but this is the real historic step and an important shift away from a world in which a few rich countries (try to) take decisions on their own.

"The deal includes some 'carve-ups' which essentially allow countries to lower the corporate income tax rates to encourage investment. Whilst this in practice will mean some tax competition between countries will still be possible, the deal severely limits how much competition is feasible - a big change from the current situation. Some of these 'carve-ups' will have to be scrutinized and ideally will be revisited: why, for example, are banks and financial services exempt? The UK pushed for this, but there is no good reason to exempt this sector.

"Who will lose from this? Tax havens, which have in the past decades attracted billions in (paper) investments with their low tax rates. The fact that some havens (Switzerland, the Cayman Islands) have signed up to a deal which threatens their tax model is testimony to the intense political pressure they have faced.

"Who will gain? First and foremost, countries in which multinational companies have their headquarters, like the US. But the deal also means that multinationals will pay more taxes where they sell their products, not just where they have their headquarters. This has the potential to direct more tax revenues towards developing countries with growing consumer bases.

"There is still much to be decided, but this world-wide agreement shows the majority of countries see this tax deal as potentially in their interest and are willing to cooperate to make it happen."

2 July 2021


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