In Focus: Tax  

G20 leaders debate global tax rate hike

G20 leaders debate global tax rate hike
 Photo by Porapak Apichodilok from Pexels

Corporates might face a minimum tax rate of 21 per cent in a bid by global governments to avoid tax dumping and create a fairer playing field.

Earlier this week, G20 finance ministers discussed a global minimum tax on corporate profits after US Treasury Secretary Janet Yellen proposed a tax rate of 21 per cent as a minimum rate.

However, German federal minister of finance, Olaf Scholz, was non-committal about whether he supports a tax rate at this level and other ministers have not fully thrown their weight behind it yet either.

Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group in the European Parliament, called on Scholz and others to step up and agree on measures to prevent tax dumping.

Giegold said: "The crux of the global minimum tax on corporate profits is the tax rate. Only with an appropriate tax rate is the global minimum tax a powerful weapon against tax dumping.

"Scholz's refusal to commit to a concrete tax rate is not helpful. Scholz should get behind Yellen's proposal and support the 21 percent tax rate.

"The 12 per cent discussed so far in the OECD would avoid conflicts with the EU tax havens, but are too low to end the tax race to the bottom." 

Instead, Giegold said the 21 per cent would be a fair minimum tax rate for global corporate profits, and would be "a chance to end the tax dumping on corporate profits".

He said given the Covid crisis, countries could no longer ignore corporate tax avoidance.

So-called tax dumping is not a new concern; it has been raising its head more frequently since the digital economy took off and is classed as poor tax governance from countries offering 'competitive' tax rates.

Background

In 2016, EU ministers asked what the Commission was doing to prevent countries from slashing rates of corporation tax to such an extent that they give preferential treatment to large corporates and thereby reduce the potential for more tax raised.

In a written question in 2016 to the EC, ministers Monica Macovei and Patricija Šulin commented: "The digital economy, given its non-material character, has enabled firms operating in the digital sector to cut their tax burdens with great ease, eroding tax bases, and to transfer profits to countries with lower taxation.

"This means that these companies have enjoyed privileged treatment, in terms of lower rates and composition of the tax base."

In 2018, FTAdviser reported on the outcry caused by former Prime Minister Theresa May when she told a conference in New York: "Whatever your business, investing in a post-Brexit Britain will give you the lowest rate of corporation tax in the G20."

At the time, critics said any possible post-Brexit trade agreement should include minimum tax rates, because a huge, low tax zone in the EU’s immediate neighbourhood could not be accepted.