Global Minimum Tax: Paradigm Shift in Tax Policy


ZEW Economist Christopher Ludwig in the #ZEWPodcast

The global minimum tax aims to make it more difficult for international corporations to avoid paying taxes. Whether the measure delivers what it promises is analysed by ZEW economist Christopher Ludwig in the latest episode of the ZEW Podcast.

It has long been known that many large corporations park their billions in profits in offshore tax havens – at the expense of society. The global minimum tax is supposed to solve what has led to worldwide resentment in recent years. The idea is that a uniform rate of 15 per cent will make it more difficult for international corporations to optimise their profits bypassing the domestic tax authorities. Whether the global minimum tax delivers what it promises is discussed by Christopher Ludwig, researcher in the ZEW “Corporate Taxation and Public Finance” Department in the latest episode of the #ZEWPodcast Wirtschaft · Forschung · Debatten’/‘Economy · Research · Debates’. The ZEW tax expert also presents the second pillar of the worldwide tax reforms, i.e. the global distribution of profits, and discusses central points of criticism.

“We no longer have this traditional economy where companies have one fixed production site; instead we now have many digital companies that operate globally,” says Christopher Ludwig in conversation with podcast host Carola Hesch. This completely new form of economic activity in the 21st century makes it necessary to tax things like data, which are completely detached from production locations. In addition to the minimum tax, the agreed global profit distribution represents another paradigm shift, as it follows a market-based taxation approach, which provides that, for the first time, taxes will also be paid where the consumers are located.

“Considerable effort”

The economist voices criticism, too. On the one hand, the global distribution of profits makes it “incredibly difficult for companies to determine where they actually generate turnover”. On the other hand, the tax authorities would face a “very high administrative burden”. Ludwig even sees the danger that the new rules could spark diplomatic crises if Germany were to depend in future on countries like China “giving up part of their tax pie voluntarily”. Even though the global tax reform is necessary, its implementation is still challenging: “It is absolutely impressive to see that 134 countries have come together and agreed on this reform,” says Ludwig.