Global Minimum Taxes: From Destructive Race to Competition – Opinion

One must be careful with the adjective “historical”. But in this case it seems appropriate. On Thursday evening, 130 countries agreed on a global minimum corporate tax. US Treasury Secretary Janet Yellen said that even if many details are not yet clear, it is a “historic day for economic diplomacy.” After years of academic and political preparatory work, there is now a set of rules under which companies operating internationally can be taxed equally. The concept was developed within the framework of the Organization for Economic Co-operation and Development (OECD), a think-tank that includes most of the Western industrialized nations. It was approved not only by the United States and most Europeans, but by countries such as Turkey, India, and most importantly China.

It is particularly important that interstate competition not be abolished by tax policy. It would not have worked either, because the reasons for this competition have not disappeared – governments want to attract capital and thus create jobs and prosperity. But the competition has become civilized; It should no longer lead to a race to the bottom, and eventually major corporations are no longer taxed. Moving the corporate headquarters to a tax haven would lose its appeal if the states in which the company in question does business can simply after tax deductions on its profits.

It is not clear whether the German tax authorities will benefit significantly

So much for the easy part of the historic settlement. But there is also a second, more complex part. The minimum tax form only works for international corporations if it is spelled out in the country where their profits are taxed. In the ancient, pre-digital world, there was no doubt about this question: it is the country in which the company is headquartered. In the age of the Internet, this no longer reflects reality. Therefore, profits must also be taxed as the group makes its sales.

The audience usually only talks about the obvious examples of Facebook, Apple, Microsoft, and Amazon. Of course, the principle also applies to companies such as Siemens, VW, Daimler or BMW. Especially for an exporting country like Germany, small print is very important here. And about this small print – measurement limits and tariffs – the parties have not yet agreed. This is where the decision is made as to whether the German tax authorities really get much more money than this.

At least: the idea is out there in the world

Next week’s meeting of finance ministers and central bank governors in Venice is expected to approve the concept of a minimum tax. Then all participating countries have to agree to this, which is not normal. Treasury Secretary Yellen, for example, can count only on a slim majority of Democrats in the US Senate, and that’s what he is constantly subjected to by opponents. Within the European Union, Ireland, Hungary and Estonia in particular resist the minimum tax. Ireland is the seat of many international companies and only 12.5 per cent is taxed. The country will claim compensation within the EU before approval.

In this way, a revolution was announced in an agreement on Thursday evening. But it hasn’t started yet. One can hope that the ideas of the tax competition civilization will not disappear from the world.