Representatives from the G-7 countries – including the United States, Great Britain, France and a few others – agreed over the weekend to support a minimum corporate tax rate of 15%. That would be a global minimum tax rate that is still a long way from theory to reality. But behind this theory are hundreds of billions in potential revenue from multinational corporations.
A minimum global tax rate of 15% is really about fairness, said Sebastian Mallaby, senior fellow on international economics at the Council on Foreign Relations.
For example, you and I pay taxes based on where we live, “but corporations have this magical ability to travel the world and find the legal presence of their profits wherever they want,” Mallaby said.
Places like Luxembourg or the Cayman Islands – countries and territories that have used near-zero tax rates for decades to attract businesses, their workers and their investments.
“So the idea of a minimum tax of 15% would only discourage companies from relocating overseas,” said Ruth Mason, professor of law and tax at the University of Virginia.
Mason said theoretically all countries would benefit from a global minimum tax, even small developing countries that have tried to lure companies with low taxes.
“If you have to pay 15% wherever you are, it gives the developing country headroom for taxes of 15,” said Mason.
However, more tax revenue is likely to flow into the advanced economies, said Harvard economist Kenneth Rogoff.
American companies – big beneficiaries of the current system – may not want to go to the trouble of setting up an offshore shell company, for example, if it doesn’t save them so much in taxes, Rogoff said.
“So the hope is that we will do more business in the United States, [and] be able to collect more corporate taxes, although other countries will also get some of the benefit, ”he said. Rogoff added that countries around the world are trying to expand social services, improve their infrastructure and tackle inequality. Increasing corporate revenue is one way to do this.