Companies could pay nearly 14% more under global tax deal, IMF says

The IMF estimate is in line with the OECD, which said a minimum rate could raise government incomes by billions a year. PHOTO: AFP

WASHINGTON (BLOOMBERG) - Companies worldwide could collectively pay almost 14 per cent more in corporate income taxes annually if a global tax accord is fully implemented, according to new estimates from the International Monetary Fund (IMF).

The IMF's projections foreshadow a sharp increase in corporate tax collections largely tied to a two-part pact struck last year with nearly 140 countries, including Singapore, to implement a 15 per cent minimum tax rate and an overhaul of some global taxing rights to require some of the largest companies to book income in the countries where revenues are generated.

The minimum tax would increase corporate tax payments worldwide about 5.7 per cent - or roughly US$150 billion (S$204.6 billion), according to the IMF's estimates.

Corporate tax revenues could increase an additional 8.1 per cent because of reduced tax competition - meaning that companies have less incentive to use complex business structures to stash income in lower-tax countries because of the worldwide floor of 15 per cent.

The IMF estimate is in line with the Organisation for Economic Cooperation and Development (OECD), which said a minimum rate could ultimately raise government incomes by US$150 billion a year, while new rules would reallocate US$125 billion of profits to be taxed in nations where big corporations generate revenue but may have little physical presence.

The IMF's projections assume that countries that currently have tax rates below the minimum increase their rates to at least the minimum level.

That would increase the average corporate rate in the world would increase to 24.3 per cent to 22.2 per cent.

The estimates provide an optimistic outlook for a potential end to rampant cross-border profit shifting, a problem that world leaders have for years been trying to resolve.

Governments lose an estimated US$100 billion to US$240 billion in tax revenue each year to corporate tax avoidance, according to OECD.

However, the projections do not take into account the possibility that some of the countries who signed onto the global tax deal last year do not end up enforcing it.

The OECD, which helped facilitate the negotiations, does not have the power to implement it - that is up to each country's local government to do.

In both the United States and the European Union, both strong supporters of the global negotiations that resulted in the deal, there are headwinds to making it a reality.

The US Congress has embedded the law changes in a broader tax and spending packages that is bogged down in a narrowly divided Senate. Poland blocked a compromise to implement the deal in the EU earlier this month, pushing any resolution to at least next month or beyond.

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