An International Corporate Tax Minimum?
"Money, like water, will always find an outlet."
“Money, like water, will always find an outlet.”
U.S. Supreme Court Justices John Paul Stevens and Sandra Day O’Connor,
McConnell v. Federal Election Commission, 540 U.S. 93 (2003) (1)
Here’s an October 08, 2021 statement from the Organization for Economic Cooperation and Development:
“Major reform of the international tax system finalised today at the OECD will ensure that Multinational Enterprises (MNEs) will be subject to a minimum 15% tax rate from 2023.”
“The landmark deal, agreed by 136 countries and jurisdictions representing more than 90% of global GDP, will also reallocate more than USD 125 billion of profits from around 100 of the world’s largest and most profitable MNEs to countries worldwide, ensuring that these firms pay a fair share of tax wherever they operate and generate profits.” (1)
On its face, that seems pretty terrific. Finally, finally, a prospective worldwide tax floor of 15% on corporations!
Importantly, it’s predicated on where companies conduct their businesses -- not based on tax rates in whatever existing haven they deem to be their headquarters.
U.S. Treasury Secretary Janet Yellen is said to have been a catalyst in obtaining consensus. She stated: “Today’s agreement represents a once-in-a-generation accomplishment for economic diplomacy. We’ve turned tireless negotiations into decades of increased prosperity – for both America and the world.” (3)
But there are critics. Calling it a “mockery of fairness”, Susana Ruiz of Oxfam International writes: “The world is experiencing the largest increase in poverty in decades and a massive explosion in inequality but this deal will do little or nothing to halt either.” (4)
Consider this. According to the Tax Foundation, “(t)he worldwide average statutory corporate income tax rate, measured across 177 jurisdictions, is 23.85 percent.” (5)
That leads me to wonder: is 15% actually enough? “The minimum becomes the maximum,” as I like to say (cynically).
In other words – might the ultimate result of this agreement be that today’s tax rates, over time, actually drift downward toward 15%?
At present, I fancy that corporate taxes worldwide drain through a figurative sieve.
With this agreement, I suppose that they now may pass through a figurative colander.
Stevens and O’Connor were correct. “Money, like water, will always find an outlet.”
Sources:
(1) https://supreme.justia.com/cases/federal/us/540/93/ (And yes, the lead plaintiff was Senator Mitch McConnell.)
(3) https://home.treasury.gov/news/press-releases/jy0394
(4) https://www.oxfam.org/en/press-releases/oecd-tax-deal-mockery-fairness-oxfam
(5) https://taxfoundation.org/publications/corporate-tax-rates-around-the-world/#Trends
Background:
For more on the OECD, see https://www.oecd.org/about/