New Global Minimum Tax Rate Proposal Too High, World Bank Warns

The Biden Administration recently called for setting a new global minimum tax rate for companies, but David Malpass, President of the World Bank, warns that it might be too high. Officials expect to reach a global tax deal by mid-year.

U.S. Treasury Secretary Janet Yellen proposed for the global minimum rate to be set at 21% which “strikes me as…high,” Mr. Malpass said. He did not want to see new rules that would hinder poor countries’ ability to attract investment, he added.

Several countries have significantly slashed rates on companies in hopes of attracting business investments. A global minimum tax on companies is needed to stop a “30-year race to the bottom”, Ms. Yellen explained.

She hopes that all countries will agree to the 21% minimum tax rate while the U.S. aims to increase its own minimum corporate rate to 28%. Establishing a global minimum rate would allow the U.S. to remain competitive despite their own increase, Ms. Yellen appealed to U.S. lawmakers.

On the other hand, the UK is also set on increasing taxes on corporations from 19% up to 25% in 2023, which would mark the first rise since the 1970s.

There were earlier talks of a global minimum corporate rate of 12.5%, led by the Organization for Economic Co-operation and Development (OECD). The European Commission also backs the idea of a minimum tax, but officials declined to mention a specific rate.

According to the Tax Foundation, the average corporate tax rate is around 24% globally. Europe, which has the lowest regional rate, is at approximately 20%.

Talks of a global tax deal have gone on for years without reaching a solution. While Mr. Malpass was encouraged by the renewed focus on the matter, he urged world leaders to consider how a new global minimum tax would correspond with other priorities for the negotiations like proposals to tax carbon and digital services from tech giants.

“The critical thing is to have growth for countries around the world,” said Mr. Malpass. “Tax rates matter for everyone and so there also needs to be a legal environment that attracts new investment into the poorer countries.”

Source: BBC