The Organisation for Economic Co-operation and Development (OECD) presented, on Tuesday 9 January, an updated assessment of the economic impact of the global minimum tax on multinational enterprises, which has been applied in the EU since 1 January (see EUROPE 13320/17). This initiative is expected to generate additional tax revenues of between $155 and $192 billion each year, or between 6.5 and 8.1% of global tax revenues.
This tax will reduce global low-taxed profits by around 80%; from 36% of all profit globally to about 7%. This reduction stems from both the reduction in profit shifting and the application of top-up taxes. It is present in all income categories, but is largely concentrated in investment hubs.
Revenue gains are of a similar order of magnitude across most income groups: from 5.1% to 8% of low-taxed profits in developed economies and from 3.6% to 7.8% in developing economies. “Gains are shared widely among jurisdictions, because of the existence of low-tax profit in most jurisdictions, including jurisdictions with high statutory and average effective tax rates”, explained David Bradbury, Deputy Director of the OECD’s Centre for Tax Policy and Administration.
According to the report, investment hubs will lose around 30% of their tax base as a result of reduced profit shifting, resulting in revenue gains for other jurisdictions.
“More than half of all low tax profit globally, is actually located in high tax jurisdictions; that is jurisdictions that have an average effective tax rate of about 16%”, said Mr Bradbury. “So it really does show that not only do you need to look beyond statutory tax rates, you need to look beyond the average effective tax rate to see what is really going on within jurisdictions”, he added.
Differences in taxation between jurisdictions are likely to diminish, which will probably increase the importance of non-taxed factors in influencing investment decisions and improving the allocation of capital at global level.
As a result of the increase in the taxation of low-taxed profits worldwide, the average tax rate differential between all jurisdictions is falling by around 30%.
The analysis highlights that the implementation of ‘Qualified Domestic Minimum Top-Up Taxes’ can be an important tool for jurisdictions to collect additional taxes on low-taxed profits originating in their own jurisdiction.
To read the study: https://aeur.eu/f/ab6 (Original version in French by Anne Damiani)