One of the main criticisms of the 15% global minimum tax is that it’s too low. It creates a floor for the race to the bottom in global corporate taxation, but just a few countries worldwide have statutory corporate tax rates below 15%. In other words, the level of adjustment by both low-tax jurisdictions and multinational corporations may seem very limited. 

However, Manal Corwin, director of the OECD centre for tax policy and administration, and John Peterson, acting head of the OECD’s tax division, argue that line of reasoning is misleading.

Q: With only a few countries having a statutory rate of 15%, why don’t you expect a very limited impact? 

JP: Our data shows that 53.2% of all global low-tax profits are actually in high-tax jurisdictions. It’s a phenomenon that we find particularly in developing countries, where they have very high statutory rates, but then in order to create the incentives for investment, they put those aside and provide tax holidays or other things that dramatically reduce the size of the tax base so that the effective rate in these jurisdictions is often very low. That’s what this minimum tax is targeting. 

Q: Developing countries, whose consensus over the global minimum tax reform has been eroding, are spearheading an initiative that aims to create a bigger role for the UN in establishing conventions on international taxation, which may rival the platform developed by the OECD. What’s your view of that development? 

MC: At the same time that changes are happening at the UN, we continue to see tangible outcomes of collective and collaborative action, which is consensus-based [as opposed to majority-based decisions]. Inclusivity has been a mission for us for a few years. The Inclusive Framework on BEPS started in 2016 with 82 members, now it has 145. Or the Global Forum on Transparency, which now has 170 participating jurisdictions. 

We recognise that there are a number of areas where we can continue that inclusivity journey and make sure that voices are heard, that concerns are addressed quickly enough, while making sure that our internal process is not only inclusive in form, but also in substance. The fact that we’ve produced results together with many developing countries at the table is a tangible fact. We continue to be devoted to working not only with developing countries, but with other international organisations and even new emerging formats to continue that positive trajectory.

Q: Implementation of pillar two starts in January 2024. How do you assess progress so far? 

MC: Based on the information we have, around 55 jurisdictions have indicated intent or taken steps towards implementation. January 2024 is the starting point and we’re seeing pick-up moving towards that date. It’s a snowball effect. The more countries start doing it, the more other countries have an incentive to protect their own tax base. So what we’re going to see is that maybe at the beginning it trickles in that first year, as we’re seeing now, and then we expect an acceleration, because countries will have a stronger incentive the more the first movers take on. The uptake we are seeing makes us confident that over the next year or so, we’re going to get to a place where we have that critical mass and the minimum tax has the desired global impact. 

JP: The staggered implementation is really a lot about co-ordination. We are currently looking at around 36 countries in total, including EU countries, that we would expect to have legislation in place next year. The idea is that they introduce an income inclusion rule, initially, and then subsequently 2025 is when the undertaxed profit rule comes in. That’s the backstop mechanism to make sure that if the jurisdiction with the economic activity is not taxing the income at the minimum rates, then that top-up tax gets allocated out to the jurisdictions that have implemented the undertaxed profit rule. And that’s the mechanism that, effectively, creates that snowball effect. 

This article first appeared in the December 2023/January 2024 print edition of fDi Intelligence

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