Global Minimum Corporate Tax Agreement Weakens and Faces Revenue Shortfall

by Anna

An ambitious global agreement, involving more than 140 countries and territories, aimed at addressing tax havens and imposing a minimum corporate tax, is facing criticism and revenue shortfalls due to various loopholes. The agreement, negotiated by the Organization for Economic Cooperation and Development (OECD), set a minimum global corporate tax rate of 15%, with the goal of preventing multinational corporations from using tax avoidance tactics to shift their earnings to low-tax or no-tax havens.

However, the EU Tax Observatory has warned that the original intent of the agreement has been undermined by these loopholes, and it will raise only a fraction of the expected revenue. The agreement was initially expected to generate an amount equivalent to almost 10% of global corporate tax revenue, but it is now estimated to contribute less than 5% due to these loopholes.


The revenue shortfall is attributed to the introduction of various loopholes as the agreement’s details were refined. For example, there is a provision that allows companies with tangible business operations in a particular country to pay a tax rate below 15%, which could encourage firms to relocate production to countries with lower tax rates.


Another loophole allows countries to offer tax credits, such as for research and local investments, that can reduce companies’ tax rates below the 15% threshold while still complying with the agreement. The EU Tax Observatory is concerned that the race among governments to provide tax breaks for green technologies to combat climate change could lead to the depletion of government revenues and increased inequality.


The EU Tax Observatory is not calling for an outright ban on green technology subsidies but suggests that governments consider other policies to offset the financial gains to the wealthy from such tax breaks. The group also pointed out that multinational corporations have shifted a significant amount of profits, around $1 trillion, to tax havens, with American companies accounting for a significant portion of such profit shifting.


U.S. Treasury Secretary Janet Yellen recently mentioned that the minimum-tax agreement won’t be finalized until 2024, as there are still unresolved matters important to the United States and other countries.

Additionally, the EU Tax Observatory praised an initiative to stop the wealthy from evading taxes by exchanging taxpayer information among financial institutions worldwide, essentially ending bank secrecy. However, it notes that the effective tax rates of billionaires remain significantly lower than those of other population groups, calling for a 2% global tax on billionaires’ wealth to raise $250 billion annually from fewer than 3,000 individuals.

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