Companies worldwide could collectively pay almost 14% more in corporate income taxes annually if a global tax accord is fully implemented, according to new estimates from the International Monetary Fund.
The IMF’s projections foreshadow a sharp increase in corporate tax collections largely tied to a two-part pact struck last year with nearly 140 countries to implement a 15% minimum tax rate and an overhaul of some global taxing rights to require some of the largest companies to book income in the countries where revenues are generated.
The minimum tax would increase corporate tax payments worldwide about 5.7% — or roughly $150 billion, according to the IMF’s estimates. Corporate tax revenues could increase an additional 8.1% because of reduced tax competition — meaning that companies have less incentive to use complex business structures to stash income in lower-tax countries because of the worldwide floor of 15%.
The IMF estimate is in line with the OECD, which said a minimum rate could ultimately raise government incomes by $150 billion a year, while new rules would reallocate $125 billion of profits to be taxed in nations where big corporations generate revenue but may have little physical presence.
The IMF’s projections assume that countries that currently have tax rates below the minimum increase their rates to at least the minimum level. That would increase the average corporate rate in the world to 24.3% to 22.2%.
The estimates provide an optimistic outlook for a potential end to rampant cross-border profit shifting, a problem that world leaders have for years been trying to resolve. Governments lose an estimated
However, the projections don’t take into account the possibility that some of the countries who signed onto the global tax deal last year don’t end up enforcing it. The OECD, which helped facilitate the negotiations, doesn’t have the power to implement it — that’s up to each country’s local government to do.
In both the U.S. and the European Union, both strong supporters of the global negotiations that resulted in the deal, there are headwinds to making it a reality. The U.S. Congress has embedded the law changes in a broader tax and spending package that is bogged down in a narrowly divided Senate. Poland blocked a compromise to implement the deal in the European Union earlier this month, pushing any resolution to at least next month or beyond.
— With assistance from William Horobin
