According to a recent report that was released by the Organization for Economic Co-operation and Development (OECD), Corporate tax rates are beginning to stabilize after decades of being on the decline. For years upon years, we have seen governments around the world cutting tax levies in a worldwide competition to draw in investment from multinational firms, resulting in a steady decline.
Data
The data that was released by the OECD says that the average statutory tax rate in the sample it took from over 160 countries remained unchanged at 20% for the year 2021. The stable year for global corporate tax rates is also thought to be a result of the spending programs that several countries around the world initiated during the COVID-19 pandemic, as well as the economic challenges endured by many countries, according to the report.
Global Minimum Tax
The OECD is one of the pioneering organizations when it comes to talks of setting a global minimum tax. This tax would ultimately put an end to the worldwide competition to draw in corporations by offering little to no tax rates. In 2021, 140 countries around the globe have recently made a deal to implement a 15% minimum tax rate. However, the insertion of this rate has been halted due to political opposition in many countries, including the United States.
Urging Countries to Initiate Tax
The OECD says that its data ultimately proves that governments around the world need to put this global minimum tax into law sooner rather than later. According to the individual country reporting, multinational firms that are based in a place with no corporate tax rates have revenues per employee of around $2 million. On the flip side, the revenue per employee is approximately $300,000 in places that have some sort of tax levy.
Shifting of Profits
The same report also dove into companies that are controlled by the same multinational, where signs of shifting profits into countries with more favorable tax policies were noticed. In many of these places, the investment of foreign companies greatly exceeds the size of that particular economy. In these areas, transactions between companies with the same multinational were roughly 35%. This is extremely higher than the average of 15% seen in other areas.
“While these effects could reflect some commercial considerations, they are also likely to indicate the existence of base erosion and profit shifting,” the OECD said.
Wrap-Up
It is going to be an interesting development to see what countries are going to initiate the global minimum tax in the near future. As more countries begin to enforce stricter tax laws on these multinational corporations, these giant companies may be running out of places to go.