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Global Minimum Tax: A Windfall For Tax Havens
OECD research reveals tax havens like Ireland and the Netherlands could see major gains from the new global minimum tax.
The implementation of the global minimum tax, effective from January 1, 2024, across the EU, UK, and other major economies, is set to significantly increase state revenues from multinationals, especially in known tax havens. The OECD's latest research suggests a surge in corporate tax income for these countries.
Surprising Beneficiaries Of Tax Reform
Despite the intention to standardize corporations' tax rates at a minimum of 15%, tax havens like Ireland, the Netherlands, and others are poised for substantial gains. According to an OECD working paper, these "investment hubs," where inward foreign direct investment notably exceeds their GDP, could see corporate income tax revenues rise from a minimum of 14% to as much as 34%. Investment hubs include jurisdictions such as Bermuda, the British Virgin Islands, Ireland, Jersey, Guernsey, Luxembourg, Netherlands, Switzerland, and Singapore.
Impact On Multinational Corporations
The global minimum tax, agreed upon in principle by over 140 countries in 2021, aims to halt the declining trend in corporate tax rates globally. Under this new framework, if a multinational's profits are taxed below 15% in one country, other countries can impose an additional levy. Manal Corwin, the OECD's head of tax, notes that while investment hubs might initially benefit, the longer-term business decisions could shift as setting up structures in these hubs becomes costlier and less incentivized.
Varied Gains Across Countries
The OECD's findings indicate that high-income jurisdictions like Australia, Germany, Japan, and the UK are set to receive additional revenue, albeit at a lower rate of 7% to 10% compared to the substantial increase for certain tax havens. Countries with a significant economic presence of multinationals, such as Ireland and the Netherlands, are expected to benefit most significantly from these changes.
Revised Estimates And Future Outlook
Despite initial estimates projecting up to $220 billion in additional tax revenue from the global minimum tax, the OECD has revised this figure to range between $155 billion and $192 billion annually. This adjustment is attributed to more recent data and changes in their modeling. Nonetheless, the overall impact of the global minimum tax is anticipated to result in at least a 3% increase in tax revenue for all participating countries, reflecting the widespread presence of low-tax profit across various jurisdictions.
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