Minimum 15% global corporate tax has so many loopholes it will only generate half the revenue expected, report warns

A recent report by the EU Tax Observatory, supported by the European Union, reveals that the ambitious 2021 agreement aimed at tackling tax havens and ensuring multinational corporations pay their fair share of taxes is facing significant challenges and revenue shortfalls. The landmark agreement, brokered by the OECD, established a minimum global corporate tax rate of 15% to prevent companies like Apple and Nike from exploiting loopholes to shift profits to low-tax jurisdictions, resulting in a loss of $100 billion to $240 billion in tax revenue annually.

However, the report highlights that the agreement has been weakened by loopholes, leading to a significant reduction in the expected revenue. Initially projected to generate nearly 10% of global corporate tax revenue, it is now estimated that the minimum tax will only contribute less than 5% of corporate tax revenue. The introduction of loopholes during the refinement of the agreement, along with the deferment of certain provisions until 2026, have significantly impacted the potential revenue. The report suggests that a 15% minimum tax could have raised approximately $270 billion in 2023, but with the loopholes, this figure drops to around $136 billion.

The report also points out that the agreement still allows companies with tangible operations in specific countries to pay tax rates below 15%, potentially incentivizing production relocation to countries with lower tax rates. This poses a risk of exacerbating the race to the bottom in corporate tax rates. Additionally, the availability of tax credits for green technologies, although aimed at combatting climate change, can further reduce effective tax rates and deplete government revenues.

While the EU Tax Observatory acknowledges the positive impact of the exchange of taxpayer information among financial institutions in curbing tax evasion, it highlights that the effective tax rates of billionaires remain significantly lower than those of other groups in the population due to tax avoidance schemes. The report suggests implementing a 2% global tax on billionaire wealth, which could raise $250 billion annually from a small number of individuals.

Despite the challenges and revenue shortfalls, the report recognizes the progress made in addressing offshore tax evasion and the importance of international cooperation in combatting tax avoidance. However, it emphasizes the need for further reforms and measures to close loopholes, ensure fair taxation, and mitigate the impact of tax breaks on inequality and government revenues.  

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