ZEW Tax Expert Christoph Spengel on the Creation of a New Minimum Tax for Large Companies

Comment

“Many Controversial Details Remain to Be Resolved Before a Global Agreement Can Be Reached”

At their meeting in London, the finance leaders from the Group of 7 countries agreed on backing the creation of a global minimum tax rate of at least 15 per cent for large companies. In addition, the agreement envisages forcing the largest and most profitable companies to pay taxes on part of their turnover to countries based on where they sell their services and goods. Until now, multinational companies have been able to shift profits and thus avoid taxation in countries with higher tax rates. Professor Christoph Spengel, tax expert at ZEW Mannheim and the University of Mannheim, comments on these plans:

“With this political accord, the G7 finance ministers have sent the signal that they support the global reform of corporate taxation that is currently being discussed by almost 140 countries. It is to be welcomed that they seek uniform international standards in tax policy and try to prevent national solo efforts, such as the digital tax in France and Italy. However, many controversial and complex details will still need to be clarified before a global deal can be reached. These details, including the rules according to which the tax base is determined, are essentially decisive for which companies will be affected by the reform.

A systematic implementation of the global minimum tax could indeed reduce the incentive to shift income to low-tax countries. However, this only works if all countries worldwide sign the deal. The incentives for companies to relocate their headquarters to a country that would not adopt the minimum tax rate are high. Moreover, there is a risk that the reform proposals will make corporate taxation even more complex and create unnecessary costs for companies and tax administrations.

As an existing means of taxing consumption in market states, value-added tax receives surprisingly little attention in the current political debate. Yet billions in tax revenues are at stake if it is not levied appropriately. A thorough adjustment of the VAT framework and enforcement of VAT on digital services could be crucial to generate and secure tax revenues in EU Member States.”

An in-depth analysis of the OECD proposals for a worldwide reform of corporate taxation can be found in ZEW policy brief No. 20-01.

General documents

ZEW policy brief “Die OECD-Vorschläge für eine weltweite Reform der Unternehmens-besteuerung – eine Wende zum Schlechten?“ (in German only)