According to new estimates from the International Monetary Fund (IMF), businesses around the world could collectively pay almost 14% more in corporate taxes each year if a global tax agreement is fully implemented.
IMF projections point to a sharp increase in corporate tax collections largely linked to a two-part pact struck last year with nearly 140 countries to implement a minimum tax rate of 15% and an overhaul of certain global tax rights to require some of the largest companies to report earnings in the countries where the income is generated.
The minimum tax would increase corporate tax payments worldwide by about 5.7%, or about $150 billion, according to IMF estimates. Corporate tax revenues could increase by a further 8.1% due to reduced tax competition, meaning companies have less incentive to use complex business structures to hide their revenues in foreign countries. low tax rate due to the global floor of 15%.
The IMF estimate is in line with the Organization for Economic Co-operation and Development (OECD), which has said a minimum rate could ultimately boost government revenue by $150 billion a year, while new rules would reallocate $125 billion in profits to tax in countries where large corporations generate revenue but may have little physical presence.
The IMF projections assume that countries that currently have tax rates below the minimum would increase their rates at least to the minimum level. This would increase the average rate of companies worldwide to between 24.3% and 22.2%.
These estimates offer an optimistic outlook for the potential end of widespread cross-border profit shifting, a problem that world leaders have been trying to address for years. Governments lose approximately 100 to 240 billion dollars of tax revenue each year to corporate tax avoidance, according to the OECD.
However, the projections do not take into account the possibility that some of the countries that signed the global tax agreement last year may not end up implementing it. The OECD, which helped facilitate the negotiations, does not have the power to implement it, it is up to the local government of each country to do so.
In the United States and the European Union, both strong supporters of the global negotiations that led to the agreement, there are headwinds to make it a reality. The US Congress has embedded the legislative changes into a larger tax and spending package that is bogged down in a tightly divided Senate. Poland blocked a compromise to implement the deal in the European Union earlier this month, pushing back any resolution until at least next month or beyond.