GLOBAL MINIMUM CORPORATE TAX TO PREVENT TAX EVASION: ANALYST

How can governments keep multinational companies from avoiding taxes by shifting their profits to low-tax countries? David McHugh asked as he explained the impact of the proposed global minimum corporate tax rate for the Associated Press (AP).

For nearly a decade, nations have grappled with that question, seeking to deter companies from legally avoiding tax by resorting to so-called tax havens — typically small countries that entice companies with low or zero taxes, even though the firms do little actual business there.

International discussions over the issue gathered momentum after U.S. President Joe Biden proposed a global minimum corporate tax rate of at least 15% and possibly higher.

The proposal has found support among other major economies such as France and Germany and has raised the prospect that a new approach to international taxation might be reached this year. That, at least, is the goal set by the Organization for Economic Cooperation and Development (OECD) in Paris, which is overseeing talks among more than 140 countries.

A possible endorsement of the minimum tax idea at the Group of Seven finance ministers’ meeting Friday and Saturday in London could add to the momentum toward a deal.

US Treasury Secretary Janet Yellen has asserted that a global minimum would end a destructive “race to the bottom” in international taxation. According to the London-based Tax Justice Network advocacy group, governments lose $245 billion annually to tax havens.

If that money were instead available to governments, they could use it for, among other things, managing their heavy costs for pandemic relief.

With a global minimum, countries would change their tax laws so that if one of their companies enjoys profits that go untaxed or lightly taxed offshore, that company would face additional tax at home to bring its rate up to the minimum. That is, the headquarters country would raise the tax rate for offshore income until it reached the minimum.

Doing so would put a floor under corporate taxation worldwide. It would remove the incentive for companies to shift profits to low-tax countries, so the thinking goes because if those companies escaped tax abroad, they would have to pay it at home anyway. An agreed global minimum would also weaken the motivation for countries to enact low tax rates to attract companies in the first place.

WEEKLY FEATURE : TRUEMONEY PHILIPPINES BUCKS THE COVID-19 CHALLENGE