Getting Closer: A Global Minimum Tax on Corporations

20 August 2021

On 1 July 2021, US Treasury Secretary Janet Yellen announced that countries representing over 90% of global GDP had agreed to a global minimum tax on corporations (“GMCT”). The GMCT seeks to put a floor on tax competition on corporate income through the introduction of a minimum corporate tax of at least 15%. Whilst certain elements give rise to positive expectations, some caveats should be noted.  Much will depend on (1) the outcome of future political negotiations and (2) the detail of the drafting at international and national levels.

The key advantages of the agreement so far

  • 133 countries have joined a new two-pillar plan approach to reform international taxation rules. This is not only the largest agreement ever signed on this matter, but it also includes low-tax jurisdictions, such as Bermuda and the BVI.
  • US Secretary Yellen has declared that not all countries need to sign up, as Pillar Two of the agreement establishes a top-up tax on parent companies in respect of the low taxed income of subsidiaries, which would decrease the leverage of tax havens.  This is a key detail to watch in relation to the agreement and its local implementation.
  • The agreement is supported by international organisations such as the G20, the G7 and the OECD. This support is not surprising, as studies have found that “phantom FDI” - investments that pass through empty corporate shells, having no real business activities - increased from 31% of global FDI in 2010 to 38% in 2017.1
  • In-scope multinational enterprises (“MNEs”) are those that meet the €750m threshold as determined under BEPS Action 13 (country by country reporting).
  • The GMCT is expected to raise c.$150bn in additional global tax revenues2.
  • Additionally, Pillar One allocates profits to market jurisdictions whose customers contribute to the success of large MNEs, without raising fiscal revenue in return. This would benefit several countries. For example, one estimate is that between €6 -15bn would be raised in France, Germany, and the US,3 thus explaining the political popularity of the agreement, particularly in the wake of the Covid-19 pandemic.
  • Pillar One also includes dispute prevention and resolution mechanisms to avoid double taxation for in-scope MNEs.  As yet there is little detail on these provisions.

The key caveats so far

  • The Biden administration supports a GMCT, but the GMCT is a part of a two-pillar package deal. Republican opposition is concerned that Pillar One will relocate 30% of the targeted MNEs’ global profits from the US to “market jurisdictions”. Without Republican support, it would take one Democratic senator to vote against the proposal for it to fail in the US.
  • In the last few years, several countries have introduced Digital Services Taxes (“DSTs”), which are considered discriminatory by some US politicians. The GMCT’s success may, therefore, also depend on the abolition of these DSTs. The European Commission has announced that it will postpone its DST proposal, prioritising the GMCT agreement instead.
  • Some countries are opposed to the GMCT, including EU members Ireland, Hungary and Estonia. For example, the Irish Minister for Finance recently said that Ireland could not be part of the GMCT agreement with a 15% global tax rate. This is expected, as almost two-thirds of Ireland’s inward FDI is “phantom”.4 Reluctant signatories may seek to establish ways to incentivise investment, despite the GMCT.


1 IMF, ‘The Rise of Phantom Investments’ (September 2019).

2 OECD, ‘130 countries and jurisdictions join bold new framework for international tax reform” (1 July 2021).

3 Conseil d’analyse économique, ‘Taxation of Multinationals: Design and Quantification’ (29 June 2021).

4 IMF, ‘What Is Real and What Is Not in the Global FDI Network?’ (11 December 2019) IMF Working Paper No 19/274.

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