Global minimum tax could bring governments higher revenues than thought

  • Higher OECD estimates may give governments a greater incentive to implement a 2021 deal that is stalled in the U.S.

PAUL HANNON (with inputs from The Wall Street Journal)
Updated19 Jan 2023
Steps to implement the minimum tax have featured in the budgets of the U.K. and Canada, and are in South Korean law.
Steps to implement the minimum tax have featured in the budgets of the U.K. and Canada, and are in South Korean law.

Governments could get a bigger windfall than previously estimated if they implement a planned overhaul of international tax rules, the Organization for Economic Cooperation and Development said Wednesday.

The Paris-based body guided lengthy talks that eventually led to the October 2021 international tax agreement. The plan set a minimum tax rate of 15% on the profits of large businesses and shifted some tax revenues to where companies sell to consumers, rather than where they are based.

Adopted by 137 countries, the tax deal is the most significant to be agreed by such a large group of countries in a century. But progress toward translating it into national laws has been slow, including in the U.S., where it is stranded in Congress.

In its second analysis, the OECD significantly raised its estimates both for the additional revenues generated by the minimum tax rate and for the revenues to be reallocated under the second plank of the plan.

It now expects the minimum tax to boost revenues by $200 billion annually, rather than the $150 billion forecast previously. And it sees $200 billion in existing revenues that would be reallocated, up from $125 billion previously. The OECD also thinks the reallocation of taxing rights would generate new revenue of between $13 billion and $36 billion.

OECD officials said the higher estimates reflect larger profits for big companies over recent years, changes to the proposed taxes and better data.

“This all increases our confidence in the results,” said David Bradbury, head of tax policy at the OECD.

The prospect of a bigger increase in revenues could give governments an added incentive to implement the international agreement.

The most significant implementation move so far was a December agreement among the European Union’s 27 members to start collecting revenues under the minimum tax from 2024.

One feature of the 2021 agreement is that a country can collect taxes on profits made by companies based in other jurisdictions to ensure that the goal of 15% is reached if those other jurisdictions don’t collect the tax themselves.

The OECD said that steps to implement the minimum tax have featured in the budgets of the U.K. and Canada, and are in South Korean law. The body said Singapore, South Africa, Switzerland, and Hong Kong have announced plans to implement the tax, while Australia, Malaysia, and New Zealand have opened public consultations.

However, the Biden administration failed in its attempt last year to get the plan through Congress with narrow Democratic majorities. Prospects look even dimmer next year, with Republicans taking control of the House of Representatives in January.

U.S. Republicans aren’t the only critics of the agreement. Nigeria, Kenya, Pakistan and Sri Lanka have refused to sign up. That group argues that the minimum tax rate has been set too low to give them the additional tax revenues they need, and has similar criticisms of the new way of sharing out tax revenues, which focuses only on the very largest international companies.

The OECD’s latest estimates indicate that poor countries will see the largest percentage increase in their tax revenues as a result of the reallocation, while recent changes to the way the minimum tax will be collected should boost their income from that source. It hopes to have firmer estimates of the degree to which developing countries will benefit when it provides its final estimates “in the next few months,” Mr. Bradbury said.

This story has been published from a wire agency feed without modifications to the text

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