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The OECD Global Minimum Tax: An Impossible Task?

Aerial View of the City of London global minimum tax oecd

Roar writer Cerys Hughes on the recently proposed blanket international tax rate for corporations. 

Last Thursday the OECD announced that 130 countries, including the UK, have agreed to a global minimum tax on large corporations. This tax would make it so that multinational companies would have to pay a minimum of 15% corporation tax in every country they operate in. This includes digital corporations such as Facebook and Google which have a long history of shying away from paying taxes.

A global tax system such as this one is potentially a brilliant move for many different countries from smaller to larger nations. The EU as a whole is losing close to €70bn a year in potential tax revenue due to the tax avoidance of multinational companies. Recently many developing countries have suffered from richer countries tightening their belts and reducing spending on foreign aid. So far smaller countries that have signed the consensus such as Angola and Paraguay have said the increase in tax revenue will be used towards funding education, infrastructure and healthcare that otherwise would’ve come from foreign aid.

Though the battle isn’t won yet. The legislation will face multiple barriers in many countries, including in the EU. For the EU to make it statute ALL the EU member states would have to agree, which is unlikely as the classic tax-haven Ireland with its low corporation tax rate of 12.5% hasn’t joined the initiative.

Trouble won’t just occur in Europe though – the US Senate will also need to approve the tax treaty. The US constitution states that for a treaty to pass, 2/3 of the Senate will need to approve of it. Unfortunately for fans of the proposed tax plan the senate is currently split evenly and Republicans are unlikely to allow a Biden backed tax plan to sail through the house. Republican Kevin Brady even dramatically labelled the tax as a “dangerous economic surrender that undermines the US economy”.

There are already exemptions being discussed, with the UK’s Chancellor of the Excheqeur Rishi Sunak pushing to exclude the City of London from the tax due to concerns of it negatively impacting the UK’s financial services sector – and to sustain the City of London loophole.

But its not all negativity and there is some signs of positive change ahead. Infamous tax havens such as Gibraltar and the Caymans Islands have agreed to the global minimum tax, an act which signals the willingness of countries to forfeit their position as the world’s best tax havens in the pursuit of fair taxes.

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