Game-changer, really?

fanfare of the G7 leaders’ summit has taken place in picturesque WHILE THE

Cornwall, UK last week, the a bigger event happened a few days before.: the minimum global corporate tax for multinationals, I mean. The •ECD has been working on this proposal for the last two years. The minimum global tax is simply one in which governments collect taxes from their multinational companies that are headquartered overseas in low-tax jurisdictions. Hence, if a U.S. company headquartered in Ireland pays the local corporate tax rate of 12.5%, the US government would claim the extra 2.5% from the company if the minimum global rate were 15%. Low-tax jurisdictions have no incentive to lower the tax rate even more, but those countries that sign up to the minimum tax do have an incentive to renege, which is why it is important that agreement is at a global level and also why the U.S.’s collaboration is crucial. The U.S. initially proposed a 21% global minimum corporate tax rate but has since reduced this to 15%. The amount of revenue governments can expect to recoup at a rate of 15% is subject to many different estimates. The •ECD believes a minimum tax will help countries receive up to USD50bn-USD80bn more per year in corporate tax revenues but it is notable that estimates suggest some 60% of these extra revenues will go to G7 countries. The regulatory arbitrage is the biggest game of the multinational firms, to avoid taxes. The new tax regime may help to government revenues. Tax havens could clearly lose out if a minimum global tax rate forces multinationals to reshore back to their original country.