Home Issues Global Economy

The case for a global minimum tax

Ng Qi Siang
Ng Qi Siang 7/9/2021 07:00 AM GMT+08  • 10 min read
The case for a global minimum tax
So far, 130 countries - including Singapore - have endorsed BEPS 2.0, with just nine abstaining.
Font Resizer
Share to WhatsappShare to FacebookShare to LinkedInMore Share
Scroll to top
Follow us on Facebook and join our Telegram channel for the latest updates.

For the past four decades, the international community has been in a “race to the bottom”. Different jurisdictions compete to cut corporate taxes in a bid to attract capital and foreign direct investment (FDI), given how globalisation makes it easier for multinational enterprises (MNE) to locate from one country to another. In the early 1980s, the worldwide average statutory corporate income tax rate was slightly above 40%; today it is slightly less than 25%. In the US, corporate tax revenue as a share of GDP has fallen from approximately 7% in 1944 to just 1.1% as of 2019.

But governments have had enough. On June 5, Group of Seven (G7) finance ministers agreed to commit towards implementing a global minimum tax of 15%. Group of 20 (G20) finance ministers and central bank governors — who preside over 90% of global GDP and 80% of international trade — are expected to sign off on the proposal in Venice from July 9–10. So far, 130 countries — including Singapore — have endorsed the proposal in principle, with implementation possibly as early as 2030.

The Base Erosion and Profit Shifting (BEPS) 2.0 proposal comprises two major pillars. Pillar One grants jurisdictions where a firm’s customer base is located greater taxing rights than those where its underlying economic activity is conducted. This rule applies to only a small group of very large multinationals. Pillar One’s threshold applies to MNEs with more than EUR20 billion ($31.9 billion) of global turnover potentially reducing to EUR10 billion after seven years.

For more insights on corporate trends...
Sign In or Create an account to access our premium content.
Subscription Entitlements:
Less than $9 per month
Unlimited access to latest and premium articles
3 Simultaneous logins across all devices
Bonus unlimited access to online articles and virtual newspaper on The Edge Malaysia (single login)
Loading next article...
The Edge Singapore
Download The Edge Singapore App
Google playApple store play
Keep updated
Follow our social media
Subscribe to The Edge Singapore
Get credible investing ideas from our in-depth stock analysis, interviews with key executives, corporate movements coverage and their impact on the market.
© 2022 The Edge Publishing Pte Ltd. All rights reserved.
Unlock unlimited access to premium articles with less than $9 per month. Subscribe Now