How Much Would Corporate Taxes Rise Under a Global Minimum Tax?

Companies worldwide could collectively pay almost 14 percent more in corporate income taxes annually if a global tax accord is fully implemented, according to new estimates from the International Monetary Fund (IMF).

The IMF’s projections foreshadow a sharp increase in corporate tax collections largely tied to a two-part pact struck last year with nearly 140 countries to implement a 15 percent minimum tax rate and an overhaul of some global taxing rights to require some of the largest companies to book income in the countries where revenues are generated.

The minimum tax would increase corporate tax payments worldwide by about 5.7 percent—or roughly $150 billion, according to the IMF’s estimates. Corporate tax revenues could increase an additional 8.1 percent because of reduced tax competition—meaning that companies have less incentive to use complex business structures to stash income in lower-tax countries because of the worldwide floor of 15 percent.

The IMF estimate is in line with the Organization for Economic Cooperation and Development (OECD), which said a minimum rate could ultimately raise government incomes by $150 billion a year, while new rules would reallocate $125 billion of profits to be taxed in nations where big corporations generate revenue but may have little physical presence.

See also:

• Why We Are Considering a Corporate Minimum Tax
• Democrats Unveil a Corporate Minimum Tax
• Treasury Prods Congress for Global Tax Accord
• Corporate Concerns over Global Tax Deal

The IMF’s projections assume that countries which currently have tax rates below the minimum would increase their rates to at least the minimum level. That would increase the average corporate rate in the world to between 24.3 percent and 22.2 percent.

These estimates provide an optimistic outlook for a potential end to rampant cross-border profit shifting, a problem that world leaders have been trying to resolve for years. Governments lose an estimated $100 billion to $240 billion in tax revenue each year to corporate tax avoidance, according to the OECD.

However, the projections don’t take into account the possibility that some of the countries signing onto the global tax deal last year might not end up enforcing it. The OECD, which helped facilitate the negotiations, doesn’t have the power to implement it—that’s up to each country’s local government to do.

In the United States and the European Union, both strong supporters of the global negotiations that resulted in the deal, there are headwinds to making it a reality. The U.S. Congress has embedded the law changes in a broader tax and spending package that is bogged down in a narrowly divided Senate. Poland blocked a compromise to implement the deal in the European Union earlier this month, pushing any resolution to at least next month or beyond.

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