The global 15% minimum levy will deliver a significant boost to government revenues and reshape the landscape for multinationals that shift profits around the world to cut their tax bills, the OECD said, raising pressure on the U.S. to implement the new rules.
The Paris-based organization, which oversaw talks on the 2021 agreement between around 140 countries, said new analysis shows the amount of profit taxed below the 15% threshold would fall by around 80%, while revenue gains for governments would be between $155 billion and $192 billion.
It estimates the rules could around halve the annual stock of profits companies park in low-tax jurisdictions from $698 billion currently.
The release of the analysis aims to show reluctant governments what they stand to lose if they fail to deliver the global tax deal, which has run into hurdles in implementation. Of the signatory countries, only around 45 are taking steps to enact the 15% rule that applies to multinationals with more than €750 million ($821 million) in revenues.
The U.S. Congress, meanwhile, is no closer to adopting either the minimum tax or the other pillar of the 2021 pact — an agreement allowing a share of profits earned by the world's biggest companies to be taxed based on where they generate revenue.
Proponents within the Biden administration have all but abandoned the idea of asking for congressional backing until after the November 2024 election.
Treasury Secretary Janet Yellen has long expected Congress to feel pressure to adopt the OECD's minimum tax once other countries started implementing the policy and applying a provision that could allow foreign governments to collect more tax from some U.S.-based corporations. So far, however, that's only brought threats of retaliation from some members of Congress.
The OECD said that if some larger countries don't implement the deal, the provision — known as the Undertaxed Payments Rule — would secure substantially larger gains for other jurisdictions.
Other key results of OECD analysis:
- The minimum levy will reduce global low-taxed profit by 69.5%, from an average of $2.14 trillion between 2017-2020, to $653 billion.
An increase in the taxation of low-taxed profit worldwide would reduce the average absolute tax rate differential across all jurisdictions to 7.1 percentage points from 10.6 percentage points.
- The differential between low-tax jurisdictions — known as investment hubs — and others would decline by around half to 7.5 percentage points from 14.2 percentage points.
- Reducing multinationals' low-taxed profit would support a level playing field with other, smaller firms, the OECD says.
The estimated gains for governments represent an increase of between 6.5% and 8.1% of total global corporate income tax revenues.
- Two-thirds of the gains would come directly from the minimum levy, while one-third would arise indirectly from reduced profit shifting.
- The gains for developed economies are seen at between 5.1% and 8% of corporate income tax, or 3.6% to 7.8% for developing economies.
- Investment hubs are estimated to lose around 30% of their tax base due to reduced profit shifting.
