THE introduction this year of a global minimum corporate tax will reshape the flow of multinationals’ foreign investments as the benefits from booking profits in tax havens disappear, an updated OECD impact study showed on Tuesday (Jan 9).

First agreed in a landmark 2021 deal between 140 countries, the global minimum tax rate goes live this year with 36 countries already introducing laws setting a 15 per cent floor on corporate taxation and more to follow.

In a bid to limit tax competition between countries, the deal allows governments to apply a top-up tax to the 15 per cent level on any profits booked in a country with a lower rate.

The global minimum, which applies to groups with over 750 million euros (S$1.1 billion) in annual turnover, aims in particular to discourage big multinationals from booking profits in low tax countries like Ireland and other offshore tax havens.

The Organisation for Economic Cooperation and Development, which has shepherded the deal from negotiation through to implementation, said the global minimum would narrow the average difference between rates in tax havens and other countries by half from 14 percentage points to seven points after it is implemented.

As result, where multinationals invest abroad is likely to be increasingly driven by such things as workforce education and infrastructure rather than which location can reduce their overall tax bill, the OECD said in an update of its estimated economic impact.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

“The global minimum tax reduces profit shifting incentives and in doing so it improves the allocation of capital by increasing the importance of non-tax factors,” David Bradbury, deputy head of tax at the OECD, said on a webinar,

While about 36 per cent of corporate profits are currently estimated to be taxed at less than 15 per cent, only 7 per cent is expected to be below that threshold after the global minimum is in place, the OECD said.

Globally governments are expected to raise an extra US$155 billion-to-US$192 billion per year in corporate tax income, an increase of 6.5 to 8.1 per cent, the OECD said, trimming its estimate from US$220 billion previously. REUTERS