Global minimum corporate tax rate

Category
Economy
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

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.