Global minimum tax will reshape foreign investment flows, says OECD

Paris — The introduction this year of a global minimum corporate tax will reshape the flow of multinationals’ foreign investments as the benefits from booking profits in tax havens disappear, an updated Organisation for Economic Cooperation and Development (OECD) impact study showed on Tuesday.

First agreed in a landmark 2021 deal between 140 countries, the global minimum tax rate goes live this year with 36 countries already introducing laws setting a 15% floor on corporate tax and more to follow.

In a bid to limit tax competition between countries, the deal allows governments to apply a top-up tax to the 15% level on any profits booked in a country with a lower rate.

The global minimum, which applies to groups with more than €750m ($820m) in annual turnover, aims in particular to discourage big multinationals from booking profits in low-tax countries such as Ireland and other offshore tax havens.

The OECD, which has shepherded the deal from negotiation through to implementation, said the global minimum would narrow the average difference between rates in tax havens and other countries by half from 14 percentage points to seven points after it is implemented.

As result, where multinationals invest abroad is likely to be increasingly driven by such things as workforce education and infrastructure rather than which location can reduce their overall tax bill, the OECD said in an update of its estimated economic impact.

“The global minimum tax reduces profit-shifting incentives and in doing so it improves the allocation of capital by increasing the importance of non-tax factors,” David Bradbury, deputy head of tax at the OECD, said on a webinar,

While about 36% of corporate profits are currently estimated to be taxed at less than 15%, only 7% is expected to be below that threshold after the global minimum is in place, the OECD said.

Globally governments are expected to raise an extra $155bn-$192bn per year in corporate tax income, an increase of 6.5%-8.1%, the OECD said, trimming its estimate from $220bn previously.

Reuters