Wednesday 20 November 2019 4:36 pm

Leading German think tank supports minimum global tax rate plans

A leading German economic think tank has voiced its support for the OECD’s plans for an international minimum corporate tax rate.

The Paris-based international organisation has proposed an overhaul to global tax rules that would ensure companies pay a minimum tax rate in their home countries, establishing “a floor for tax competition among jurisdictions”.

Read more: OECD targets tech giants as it shakes up global tax rules

Today, the respected Ifo Institute in Germany said it supported the plan. “It would limit unwanted tax avoidance arising from companies’ ability to shift their profits. At the same time, double taxation must be avoided,” said Ifo president Clemens Fuest.

In a report on the proposals, Ifo said: “The implementation of a minimum effective tax rate… would reduce profit shifting and generate substantial gains in tax revenues, and would not change much the attractiveness of all countries.”

The OECD has also recommended that a company should be deemed to have a taxable business even where its presence is only digital.

The Ifo supported this idea. “This should be a key feature of future international taxation rules,” Fuest said.

This proposal by the OECD would overturn long-standing rules that have let digital giants such as Facebook, Amazon and Google move profits around the world to dramatically lower their tax bills.

Large, developed economies with average corporation tax rates would have a lot to gain from such a change in global tax practices. Currently, they lose out on revenue to low-tax jurisdictions such as Ireland.

The OECD has breathed new life into a long-running debate on how to reform tax at a global level, an issue fraught with difficulties.

In a report in October, the organisation said: “The current rules dating back to the 1920s are no longer sufficient to ensure a fair allocation of taxing rights in an increasingly globalised world.”

Read more: Boris Johnson to woo businesses with extensive tax breaks

The G20 group of the world’s biggest economies has charged the OECD with creating detailed plans on global tax. It is currently in the consultation phase.

If the proposals are approved by the countries, they would be introduced into domestic tax systems and treaties between countries.

(Image credit: Getty)