It’s crunch time for tax-justice talks, with campaigners and many governments hoping for a breakthrough on a minimum global rate at a G7 summit in the U.K. next week—a move that could steer corporate profits away from tax havens, boost public coffers, and level the playing field for smaller businesses that compete with multinationals. And to help steer the debate, some are breaking out the big numbers.
On Tuesday, two think tanks released estimates of how much a minimum global tax rate could benefit the U.K. and the European Union. These are important players in the debate, as the U.K. is the only G7 member not to have backed the Biden administration’s proposals for a global tax-rate floor, and EU member state Ireland—with its corporate tax rate of just 12.5%—is also no fan of changes that could remove its attraction as a base to multinationals such as Google and Facebook.
The U.K. would rake in an additional £14.7 billion ($20.8 billion) in corporate tax revenue each year if there were a global minimum tax rate of 21%, the Institute for Public Policy Research’s (IPPR) Center for Economic Justice said in a report published Tuesday.
This is the rate that the Biden administration proposed earlier this year for the taxation of U.S. multinationals’ overseas activities, though the White House has since said it would accept a global floor of 15%. Even if the lower figure became the global floor, the progressive think tank said, the U.K. would still get £7.9 billion more per year.
Under the U.S. proposals, companies would have less incentive to shift their profits to countries that have tax rates below the internationally agreed minimum, because the countries where they are headquartered would then be able to tax those profits themselves. As it happens, British overseas territories include tax havens that would be badly hit by such a move, such as the British Virgin Islands, the Caymans, and Bermuda.
“The U.K. is the only member of the G7 not to support the Biden proposals,” the IPPR report’s authors wrote. “This opportunity will likely not come again. The U.K. government should support these proposals for global alignment on corporation tax and prioritize an agreement at the G7 meeting hosted in Cornwall in June.”
The summit will take place on June 11 to 13. If there is an agreement on the tax plans, it would go to the G20 for consideration in a few months’ time, then to the OECD for a global accord.
Billions for Europe
Meanwhile, the EU Tax Observatory—an EU-funded tax research group that launched Tuesday—inaugurated itself with a report claiming the EU would collect €100 billion ($122.3 billion) more this year if there were a global corporate tax-rate minimum of 21%. If the minimum rate were 25%, the report said, the extra cash would run to €170 billion, which is more than half of what the EU will actually rake in this year from corporate tax.
“Moving from 21% to 15% would reduce revenues by a factor of two,” the Tax Observatory noted.
Interestingly, the EU Tax Observatory has also released an online tool that demonstrates how much more certain multinationals would pay in corporate tax, if a global tax floor were to become a reality. In one example, Deutsche Bank would pay around €85 million more in tax each year if Germany imposed a minimum tax rate of 25% on all its profits, including those that are currently shifted to tax havens such as the UAE and the Caymans.
But what if a country refuses to play ball? “This does not stand in the way of an effective international agreement, because other countries can always choose to collect the taxes that tax havens choose not to collect,” the Tax Observatory report’s authors wrote.
“For example, the United States, Germany, or France can always decide to tax the profits recorded by their multinationals in Ireland at a minimum rate of 25%, thus making the Irish tax rate of 12.5% irrelevant (in the same way as the United States, Germany, or France tax individuals on their worldwide income, including income subject to no or low taxes abroad). This shows that offering low corporate tax rates is a fundamentally unstable development strategy, one that only works as long as other countries choose to accept tax competition—and stops working as soon as they refuse it.”
“Today more than ever, we need to clamp down on tax abuse,” said EU Economy Commissioner Paolo Gentiloni in a statement marking the Tax Observatory’s launch.
“It’s vital that we protect the public revenues necessary to support the recovery and the massive investments needed for the green and digital transitions. I count on the European Tax Observatory to conduct research of the highest level, to bring forward innovative ideas and to promote an inclusive and pluralistic debate on taxation policies across the EU.”
