The Treasury Secretary of the United States Janet Yellen called governments around the world to set up a minimum corporate tax rate at 21%. The idea was swiftly supported by the International Monetary Fund (IMF). The U.S. believes that this unified tax rate will act as a general wheel for the global economy.
So, according to Yellen this minimum tax rate should prevent cross-border capital flight, domiciliation by corporates to low-tax jurisdictions. IMF considers such a practice as a tax evasion and partial budget divestiture of incomes needed to finance economic and social expenditures. It could be thought that if tax rates were sufficiently high everywhere in the world there would be “no place to run”, and every government would have greater revenues.
This act may have been done deliberately just after recently elected U.S. President Joe Biden proposed another $2.3 billion stimulus plan that is designed to be financed primarily by rising corporate tax from 21% to 28%. U.S Administration is seen to be gravely concerned that corporates may move to other jurisdictions to minimise their tax burden. Corporate tax rate was lowered by Donald Trump in 2017 from 35% to 21% to bring corporates back to the United States and promote their development.
Corporate tax averages at 24% in G7 countries, while in the EU it stands at 21.5%, according to Tax Foundation. So, a call by Mrs. Yellen for a minimum at 21% could be tailored to the European tax regime.
The unified global corporate tax would probably mostly benefit developed countries as these countries have developed tax systems and relatively high tax burdens. Some 144 countries in the world have corporate tax equal or above 21%. The Comoro islands have the highest corporate tax which stands at 50% and Puerto Rico – at 37.5%. Some 80 countries have corporate tax lower that 21%, and those are mostly developing countries. The United Kingdom’s corporate tax rate stands at 19%, which is an exclusion from developed countries.
With such an equilibrium it may seem that Yellen’s call might be supported by most countries worldwide. However, there will probably be many countries that may not support a new tax minimum, as they are not only seen to be tempting foreign companies but they are also developing their own firms. It may not be thought that such countries as the United Arab Emirates or Bahrain, which have zero corporate tax rates, are trying to allure corporates in the same way that the Bahamas, the Caiman Islands or the Isle of Man do.
Nevertheless, it could be that jurisdictions with lower than 21% corporate tax rate would remain stable. So, even if this minimum corporate tax rate is set up in dozens of countries, it may not be enough, and it may hardly accommodate the desired results.
Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.
Risk Warning: Trading Forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.42% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Prior to trading, you should take into consideration your level of experience and financial situation. TeleTrade strives to provide you with all the necessary information and protective measures, but, if the risks seem still unclear to you, please seek independent advice.
© 2011-2021 Teletrade-DJ International Consulting Ltd
Teletrade-DJ International Consulting Ltd is registered as a Cyprus Investment Firm (CIF) under registration number HE272810 and is licensed by the Cyprus Securities and Exchange Commission (CySEC) under license number 158/11.
The company operates in accordance with Markets in Financial Instruments Directive (MiFID).
The content on this website is for information purposes only. All the services and information provided have been obtained from sources deemed to be reliable. Telerade-DJ International Consulting Ltd ("TeleTrade") and/or any third-party information providers provide the services and information without warranty of any kind. By using this information and services you agree that under no circumstances shall TeleTrade have any liability to any person or entity for any loss or damage in whole or part caused by reliance on such information and services.
TeleTrade cooperates exclusively with regulated financial institutions for the safekeeping of clients' funds. Please see the entire list of banks and payment service providers entrusted with the handling of clients' funds.
Telerade-DJ International Consulting Ltd currently provides its services on a cross-border basis, within EEA states (except Belgium) under the MiFID passporting regime, and in selected 3rd countries. TeleTrade does not provide its services to residents or nationals of the USA.