Developing countries refuse to approve G7 corporate tax rate

An overall minimum corporate tax of at least 15% was a central pillar of this month’s G7 meeting in Cornwall, UK. But a wider group of nations refuses to back the proposal.

Solicit support for the G7’s “historic commitment” to a global minimum tax rate was never going to be easy. But ahead of a meeting of G20 finance ministers in July, some members of this broader group of countries have already spoken out against the commitment.

Martín Guzmán, Argentina’s finance minister, says the minimum rate of 15% is far too low. “It is way below what the world needs today,” he told a meeting organized by the Independent Commission for the Reform of International Business Taxation (ICRICT) and the G24.

When the G20 meet in Venice, Argentina will advocate for a higher minimum tax rate. “We advocate more than 15% and no less than 21%,” says Guzmán.

A minimum tax rate of 21% could recover more than $640 billion in underpaid taxes, according to the Tax Justice Network, an advocacy group that campaigns against tax evasion. Such a tax would hit the 100 largest multinationals in the world, including Amazon and Apple.

In a draft statement issued ahead of the July 9 G20 meeting, its members endorse “the reallocation of profits of multinational companies”, although they do not specify an actual tax rate.

Outside the G20, developing countries are likely to push for an even higher minimum tax rate, says Mathew Gbonjubola, Nigeria’s tax policy director. “Developing countries and Africa in particular have been pushing for a tax rate of around 30%,” he says. South Africa is the only African country in the G20.

While some developing countries would benefit from the G7 objective of forcing companies to “raise” their taxes to a minimum of 15% in any country where they operate, multinationals would still have an incentive to establish themselves in low-tax jurisdictions, according to Gbonjubola.

This would mean that developing countries, like Nigeria, where much of the economy is run by foreign multinationals, would see little incentive to sign such a pledge.

Globally, 40% of the profits of multinational corporations are transferred to tax havens each year, according to the National Bureau of Economic Research.

But an agreement on a global minimum tax rate could fail before it is even presented to G20 finance ministers.

A meeting of OECD members this week did little to agree. Two of its member countries, Ireland and Switzerland, seem unlikely to subscribe to a minimum tax rate of 15%. The current rate of corporation tax in Ireland is 12.5%, while in some Swiss cantons, such as Zug, the rate is even lower.

Another sticking point is China, which offers its manufacturing companies incentives to boost investment through lower corporate taxes.

Selling the idea to the OECD’s “Inclusive Framework” forum made up of 139 states will be even more difficult. Tax havens such as the British Virgin Islands, Panama and Mauritius rely heavily on financial services attracted by their low tax regimes. Accepting a minimum tax rate of 15% would erode their competitiveness and their economy.

With some countries favoring no minimum corporate tax and others demanding a higher rate, finding a consensus has never been easy. “It’s complicated and it’s a first step,” British Chancellor Rishi Sunak said when the deal was announced.