It was announced with much fanfare, but the deal to introduce a global minimum corporate tax rate for big corporates has still not been resolved.
This week Janet Yellen, the US treasury secretary, continues to push for agreement on the arrangement across 136 countries.
But even as she does there are still those who argue the global minimum tax deal is in need of a rethink and perhaps a new from when it can be negotiated. Current delays may offer an opportunity to further make their case.
The global minimum corporate tax rate was launched in October last year making headlines around the world. At 15%, the rate was aimed at companies with turnovers of €750m (£633m) or more with estimates from the OECD suggesting it would generate around $150bn (£120bn) in additional global tax revenues.
Another measure announced aimed to “reallocate” taxing rights, to make countries currently unable to tax corporates operating in their jurisdiction able to do so.
Together the measures are aimed at ending the practice of profit “shifting” where some companies register in low tax jurisdictions even though they may be undertaking work or trading in higher tax markets. It has been estimated that $245bn (£196bn) is lost each year to tax havens as companies shift their profits elsewhere.
Delays to implementation
Currently, Janet Yellen is in Europe with one of her goals to finalise a deal on the minimum tax rate. US rule makers are concerned the EU has delayed implementation, while Poland has proved a block as its leaders grapple with concerns about the agreement and the effect it may have on the country’s economy.
Campaigners, however, say the deal has missed the mark, even though they back the principle. The 15% is too low, many argue, and should be up near the 25% mark.
Meanwhile, the reallocation provisions have been accused of being inequitable. Critics worry that the rights to tax under the deal are unfairly weighted in favour of countries where companies are headquartered, and that is inevitably in the developed world for many companies.
Campaign group the Tax Justice Network has said the global minimum tax project was “an historic opportunity” that “failed to come anywhere close to the original ambition”.
However, the deal has its supporters. Harvard professor Jason Furman, a former chair of the White House Council of Economic advisers has called on US lawmakers to back Yellen. “The global minimum tax agreement signals the dawn of a new era of intentional economic co-operation,” he says. Though Furman does appear to believe one of the deal’s most attractive features is the relatively low threshold of 15%.
Call to move negotiations
Currently, there is concern that changes made to the deal have happened without the involvement of many countries. There is disquiet that data revealing the likely impact of the deal has not been made public.
According to Alex Cobham, chief executive of the Tax Justice Network, the UN may be a better venue for discussions.
“While the OECD continues to extend a process that was originally supposed to conclude in 2020 and many countries—both OECD members and otherwise—feeling shut out of the decision-making, it is unsurprising that momentum is growing to move negotiations to a globally inclusive and more transparent setting at the United Nations.” He says that “there is a sense that the UN could provide both a fairer and more effective forum”.
Depending what happens in Europe, Yellen may or may not close the deal. Others clearly believe that the United Nations is a better venue to thrash out the details.
If that happens it may be a while yet before corporates and their boards are dealing with a global minimum tax rate.