The Republic is set to be among the big winners from the new global minimum tax, which will initially boost state revenues from multinationals by up to a third, according to OECD research.
The global minimum tax, which came into effect from January 1st across the EU, UK and a clutch of other big economies, applies an effective tax rate of at least 15 per cent on profits on large multinationals.
An OECD working paper published on Tuesday estimated participating countries categorised as “investment hubs” would have the largest expected gains from the reforms, with corporate income tax revenues rising from 14 per cent minimum to up to 34 per cent.
The OECD, which oversaw negotiations on the tax reforms, defines investment hubs as jurisdictions with more than 150 per cent of inward foreign direct investment of gross domestic product. These include jurisdictions such as the Republic, Bermuda, the British Virgin Islands, Jersey, Guernsey, Luxembourg, the Netherlands, Switzerland and Singapore.
The global minimum tax, originally agreed in principle by more than 140 countries in 2021, is designed to stop a decades-long downward spiral in headline corporate tax rates worldwide. Under a series of interlocking rules, if profit by a multinational is taxed below a 15 per cent rate in one country, other countries will be able to charge a top-up levy.
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Manal Corwin, head of tax at the OECD, said that while investment hubs might gain in the short term, the “key thing to watch for is the decisions that businesses make” in future.
“Those decisions become less likely in the future as it’s costly to set up structures [in investment hubs] and the incentive to do that is reduced by the global minimum tax,” she added.
The predictions about how much additional revenue tax havens would receive involved “a higher degree of uncertainty than other results”, the report added. This was because the countries in question were a relatively “heterogeneous” group.
Commenting on the report, Rasmus Corlin Christensen, an international tax researcher at Copenhagen Business School, said not all tax havens would gain equally from the reforms.
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Countries such as Ireland and Netherlands where multinationals had booked large amounts of profits and also had a large economic presence would likely benefit the most from the changes, he predicted.
The OECD research suggests high-income jurisdictions, such as Australia, Germany, Japan and the UK would receive the second-highest amount in additional revenue. But the 7 per cent to 10 per cent increase in tax revenue is significantly less than the boost for some tax havens.
Overall the report estimated that all participating countries adopting the global minimum tax would have gains of at least 3 per cent in their tax take. This was because there was “low tax profit in all jurisdictions groups”, said Ana Cinta González Cabral, one of the report’s authors.
Separate OECD research found more than one-third of global corporate profits were taxed at an effective tax rate of below 15 per cent, while roughly half of these profits were in relatively high tax jurisdictions with effective tax rates in excess of 15 per cent.
However, the OECD working paper also revised down the overall amount of additional tax it expected the global minimum tax to bring in. Last year, this was projected to be up to $220 billion (€201 billion). The OECD now estimates it will range from $155 billion to $192 billion annually. It said the revision was because of a change to its modelling which relied on more up-to-date data. – Copyright The Financial Times Limited 2024
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