A New Global Minimum Corporate Tax

The speech made last week by the United States (US) Treasury Secretary Janet Yellen warning the world of the pressures of tax competition, the erosion of the corporate tax base and the race to the bottom on corporate tax rates for three decades came as a big surprise. Stating that competitive economies require stable tax systems that can raise sufficient revenues to respond to a crisis and invest in public goods while ensuring all taxpayers fairly share the burden of financing the government, the secretary of finance argued that G20 countries, who account for four-fifths of the global gross domestic product (GDP), should agree on a global minimum corporate tax rate so that governments can eliminate global tax shopping by multinational firms and collect adequate taxes.

The suggestions elicited mixed responses. While countries like France and Germany welcomed the proposal, World Bank President David Malpass argued that the move will limit the ability of poor countries to attract global capital by lowering rates and claimed that the US proposal for a 21% minimum corporate tax rate was too high. But corporate tax rate cuts have been a global phenomenon for decades now, with rates falling across 88 tax jurisdictions between 2000 and 2020, whereas it rose in just six. The share of tax jurisdictions with corporate tax rates above 30% fell from around two-thirds in 2000 to just one-fifth in 2020.