Global minimum tax will increase revenues of tax havens

In the new year, in such centers of transnational business as Ireland and the Netherlands, corporate tax will be increased by a third, the FT reports.

According to an OECD (Organization for Economic Co-operation and Development) study, tax havens such as Ireland and the Netherlands would benefit from a global minimum tax that would initially increase government revenues from multinationals by a third.

The global minimum tax, which came into effect on January 1 EUGreat Britain and a number of other large countries, provides an effective tax rate on the profits of large multinational companies of at least 15%.

An OECD working paper published on Tuesday suggests that member countries categorized as “investment centers”will receive the largest expected benefit from the reforms, as corporate income tax revenues will increase from 14% of the minimum rate to 34%.

Winners

The OECD, which oversaw the tax reform negotiations, designates countries where the share of inward foreign direct investment in gross domestic product exceeds 150% as investment hubs.

These include territories (tax jurisdictions) such as Bermuda, Bermuda, British Virgin Islands, Ireland, Jersey, Guernsey, Luxembourg, the Netherlands, Switzerland and Singapore.

The global minimum tax, initially agreed in principle by more than 140 countries in 2021, aims to reverse a decade-long trend of lower corporate tax rates around the world.

Under a series of interrelated rules, if a multinational corporation’s profits are taxed at rates below 15% in one country, other countries will be able to impose additional taxes.

Manal Corwin, head of the OECD’s tax department, said that while investment hubs may benefit in the short term, “The main thing to watch is the decisions that companies will make” in future.

Commenting on the report, Rasmus Corlin Christensen, an international tax researcher at Copenhagen Business School, said not all tax havens would benefit equally from the reforms.

In his opinion, countries such as Ireland and the Netherlands, where multinational companies register large amounts of profits and also have a significant economic presence, will benefit most from the changes.

The OECD study suggests that high-income countries such as Australia, Germany, Japan and the UK will receive the second largest amount of additional income. However, a 7-10% increase in tax revenue is significantly less than the increase in revenue for some tax havens.

A separate OECD study found that more than a third of global corporate profits are taxed at effective tax rates below 15%, while about half of these profits are located in relatively high-tax jurisdictions with effective tax rates above 15%.

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