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Global minimum corporate tax rate

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  • Published
    13th Apr, 2021

America's treasury secretary Janet Yellen called on other countries to join Washington in setting a global minimum corporate tax rate for the Biden administration’s released plan to invest $2 trillion+ to revamp infra and boost clean energy products.


About the Global minimum corporate tax rate

  • Non-binding: It is a nonbinding global minimum corporate tax.
  • Recommended: A UN Panel, which is the High-Level Panel on International Financial Accountability, Transparency, and Integrity for Achieving the 2030 Agenda (FACTI), recommended a global minimum corporate tax of between 20% and 30%.
  • Reduction in tax competition: This corporate tax could help in reducing the tax competition for the US and other nations.
  • It is aimed to provide a level playing field and to create equitable growth.
  • It will help in the reduction of the race of taxes and corporate tax base erosion.
  • First of its kind: This is the first attempt of its kind attempted by the US as the world has not agreed to set a minimum level of the corporate tax rate.

Significance for America

  • Hike in tax rates: The plan seeks to increase the US corporate tax rate to 28 percent from 21 percent. The ex-US President had reduced the corporate tax rates from 35 percent to 21 percent.
  • Revitalization: It aims to revitalize the transportation infrastructure, water systems with other goals.
  • An increase in the tax rate and other measures to prevent the offshoring of profits will fund it.
  • More cooperation: It will support integration instead of isolationism.
  • Tax evasion: The plan will stop firms from shifting profits to tax haven countries.
  • Stability:The bill aims to stabilize tax systems to raise enough revenue to invest in public welfare.

Expected Negative impact on American Economy

  • If not agreed as a global minimum rate, the US rates would be higher than other major economies which will make US address unattractive for firms.
  • This would make foreign businesses overseas more profitable than US businesses.
  • In G7 countries, the average rate is 24 percent and even lower in some countries.

Other similar attempts

  • U.S. is also trying to push for a multilateral agreement for digital taxation at OECD.
  • The Organization for Economic Cooperation and Development (OECD) is also working on a fresh set of cross-border tax rules.
    • These rules would also include a global minimum tax rate for MNCs.

Importance for other countries

  • The International Monetary Fund has long favored the adoption of a global minimum tax on corporate profits as it would help in the reduction of current disparities in the national corporate tax rate.
  • It would largely help in reducing tax shifting and tax avoidance.
  • It would reduce the tax base on which governments could collect revenues for funding economic and social spending.

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