Latest analysis of impact of 15% Global Minimum Tax on large multinationals

In a working paper released this week, The Global Minimum Tax and the taxation of MNE profit, the OECD has updated their impact assessment of the Global Minimum Tax (GMT) – which seeks to ensure that large multinational enterprises with revenues above EUR 750 million are subject to a 15% effective minimum tax rate regardless of where they operate.

They say that around 90% of in-scope MNEs across the world will be subject to the GMT by 2025,  despite only 45 jurisdictions having implemented or announcing implementation plans.

OECD ‘discovers’ existence of substantial low-tax profit outside of tax havens

The OECD report that they now believe that more than half of total low-taxed profit across the world (53.2%) is located in jurisdictions that have average effective tax rates above 15%. Almost 40% of total low-taxed profit in the world is located in high income jurisdictions – this is due to the existence of corporate tax incentives, such as patent box.

The beginning of the end of profit shifting?

The OECD says that the GMT will substantially reduce the incentive to shift profits across the globe, resulting in an estimated fall in global shifted profits by around half – from USD $698bn to USD $356bn.

Moreover, the global amount of MNE profit taxed below the 15% minimum effective rate is projected to fall by more than two-thirds – from an average of USD $2,143bn between 2017-2020 to USD $653bn.

Estimated corporation tax gains substantial, but lower than previously

The OECD is now projecting that the GMT will increase corporation tax revenues by USD $155-192bn per year, or between 6.5-8.1% of current global CIT revenues.

Last year it said there would be gains of USD $175-261bn, with central estimates of USD $220bn, meaning this year’s estimate of how much money the GMT will raise has been revised down.

They predict broad gains across all jurisdictional groups, but higher gains for high income jurisdictions relative to lower and upper middle income countries.

Fair Tax Foundation’s thoughts

“The OECD is bullishly signalling that the GMT will substantially reduce profit-shifting by the vast majority of multinational enterprise, perhaps because it fears the that United Nations may soon take on its global tax governance remit – as many tax justice organisations would like to see,” said Paul Monaghan, CEO of the Fair Tax Foundation.

“Many commentators think the GMT is a positive step forward, but few would agree that the GMT ends profit-shifting. Just look at the way that likes of Switzerland, Gibraltar and Vietnam are implementing the GMT. Or the fact that high income countries are projected to be the main beneficiaries of boosted corporation tax gains. The GMT is a substantive step in the right direction, but much, much more is needed.”

“It should not be forgotten that a widely and robustly implemented GMT is needed to create a fair and level corporate playing field, especially between multinationals and business restricted to a single country.” Monaghan added.

As the OECD points out: “Several studies show that MNEs tend to face lower ETRs than firms operating in a single jurisdiction. The ability of large MNEs to engage in profit shifting can exacerbate the uneven playing field between large multinationals and other firms. This can favour the accumulation of market power, which may result in MNEs earning economic rent.”


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