The United States Treasury Secretary Janet Yellen is pushing for a global corporate minimum tax rate and has been long supported by the International Monetary Fund (IMF) who views the initiative as crucial for the financing of developing countries.
The global corporate minimum tax paves way to a long sought deal updating international tax rules for the first time in a generation.
Since October 2019, the Group of 20 better economies (G20) has been negotiating on the basis of a framework developed by the Paris-based Organization for Economic Cooperation and Development (OECD) that includes a minimum tax rate but also a new way of assigning the profits to be taxed among countries.
In a joint statement, IMF Director of Research Department Gita Gopinath and Vitor Gaspar, Director of Fiscal Affairs Department said the fund have for long been in favor of a common global corporate minimum tax.
“It is a big concern that we have a large amount of tax shifting, tax avoidance, countries sending money to tax havens, and that’s reducing the tax base from which governments can collect revenues and do the necessary social and economic spending that’s required. So we are very much in favor of a global minimum corporate tax,” Gopinath said.
The plan under this initiative is not only to increase corporate income tax rates in the United States, but would be framed in the context of a cooperative agreement at the global level that would increase the minimum tax at the global level to 21%.
“Without commenting on the exact number because we have not looked at that aspect of the proposal yet, the IMF has been calling for a minimum global corporate income tax rate as a way to interrupt the race to the bottom in corporate income taxation, and that is something which is important to ensure that governments have the resources needed to the various spending priorities that they have to serve, and that is something that we believe can be extremely important for the financing of developing countries,” Gaspar said.
The OECD and G20 countries aim to reach consensus on both fronts by mid-year. Other items still to be negotiated include whether industries like investment funds and real estate investment trusts should be covered, when to apply the new rate.
The Paris-based Organization for Economic Cooperation and Development has been coordinating tax negotiations among 140 countries for years on two major efforts: setting rules for taxing cross-border digital services and curbing tax base erosion, with a global corporate minimum tax part of the latter.
Countries across the world are now working towards reaching an agreement on corporate tax reform through the OECD in time for a July summit of G20 finance ministers.
While a minimum tax rate appears to have widespread backing among governments around the world, one issue that may prove difficult to settle is the level at which that rate would be set.
THE Africa Investment Forum’s Market Days 2021, an initiative of the African Develop…