Corporate Tax

Charts present the very best and lowest corporate tax charges worldwide

UK Chancellor of the Exchequer Rishi Sunak (center), US Treasury Secretary Janet Yellen (right) attends the first day of the G-7 Finance Ministers’ Meeting on June 4, 2021 at Lancaster House in London.

Stefan Rousseau | AFP | Getty Images

The finance ministers of the Group of Seven (G-7) developed nations agreed on Saturday to support a worldwide minimum tax rate of at least 15%.

US Treasury Secretary Janet Yellen said such a global minimum would “end the race to the bottom in corporate taxation” and “ensure fairness for the middle class and working people in the US and around the world”.

Governments in large economies have faced the challenge of taxing large corporations like tech giants Facebook and Google, which operate in many countries, for years.

A common practice for many multinational corporations is to declare income – for example from intangible sources such as software and patents – in low-tax areas, regardless of where the sales are made. In this way, companies avoid higher taxes in their home countries.

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The G-7 agreement contributes to a broader global effort to update tax rules around the world and will be discussed further at a meeting of the Group of Twenty (G-20) next month.

The Organization for Economic Co-operation and Development, or OECD, an intergovernmental group, has facilitated negotiations on global taxation in recent years. It expected a global minimum corporate tax rate would make up the bulk of the $ 50 billion to $ 80 billion additional tax that companies will end up paying, Reuters reported.

Highest and lowest corporate tax rates

In general, countries in Africa and South America have higher corporate tax rates than many in Europe and Asia, according to data from the Washington-based think tank Tax Foundation, the OECD, and consulting firm KPMG.

Many low-tax countries are small nations like Bulgaria and Liechtenstein, as the data showed.

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Around 15 countries do not levy general corporate tax, the data showed. These include island nations like Bermuda, Cayman Islands, and British Virgin Islands, widely known as offshore “tax havens” – jurisdictions where large corporations shift profits to pay less taxes.

These areas benefit from jobs created for multinational companies, such as legal and accounting services. Tax havens also make money from fees that large companies pay to set up subsidiaries there.

Daniel Bunn, vice president of global projects at the Tax Foundation, said low-tax jurisdictions make it easier to invest in other countries with higher taxes.

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Applying a global minimum tax rate would increase the cost of these investments and could lead to a “small economic setback,” he told CNBC’s Squawk Box Asia on Monday.

Bunn said many questions remain about how this minimum tax rate will be applied and what parts of corporate income should be taxed. He added that tax havens may not go away completely.

“It’s unclear where things will settle in a few years,” he said. “There may still be ways to bypass or circumvent, or different countries may change the rules in ways that their jurisdiction prefers.”

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