Euroviews. The global minimum tax is here, and this tax emperor has no clothes

Implementation of the global minimum tax is looming, and governments and businesses are starting to see it for what it is: a weak, if not empty, promise. 

Starting 1 January, several dozen jurisdictions will begin levying top-up taxes on large multinational companies that pay an effective tax rate of less than 15%. 

But will the new protocol raise the forecasted revenue and stamp out tax competition?

Proponents have confidently affirmed it will, but this is a little like the townspeople in the folktale, “The Emperor’s New Clothes,” not wanting to point out the truth. 

An honest assessment suggests this emperor has no clothes — the global minimum tax will neither raise expected revenue nor eradicate tax competition.

The Organisation for Economic Co-operation and Development (OECD), which shepherded negotiations in this project, estimates it will raise up to $220 billion (€201bn) annually across the globe.

Such estimates are fraught with ambiguity; even the US Congress’ Joint Committee on Taxation (JCT) is unsure how much revenue could accrue to the US Treasury if the rules are adopted in the US and elsewhere. 

JCT’s estimates drastically range from a $122bn (€111.5bn) reduction to a potential $236.5bn (€216.2bn) addition over 10 years. Tax Foundation’s own estimates of changing US rules to match the minimum tax show significant risks to the US tax base.

US legislation is nowhere to be seen since it was last attempted in 2021, and several jurisdictions, including Switzerland, are considering a delayed implementation.

And while some countries like Spain and Poland had elections in 2023 that delayed their ability to prepare to implement the rules, other countries in Africa and South America are simply hesitant to implement