Global Corporate Tax Rates Stabilize After Decades of Decline
Netherlands, Monday, 23 September 2024.
OECD reports corporate tax rates have stabilized globally at 21.1% since 2021, ending a 20-year downward trend. This shift is attributed to the implementation of a 15% minimum tax rate by over 35 countries, potentially reducing tax competition among nations.
The Historical Context
The stabilization of corporate tax rates marks a significant shift from the trends observed over the past two decades. From 2000 to 2021, there was an average decline in corporate tax rates from 28% to 21.1%[1]. This decline was driven by countries competing to attract multinational corporations by offering lower tax rates. However, recent OECD data indicate that this trend has plateaued, with the average corporate tax rate remaining steady at 21.1% for the past three years.
Impact of the 15% Minimum Tax Rate
The introduction of a global minimum tax rate of 15%, as part of the OECD’s Pillar Two framework, has played a crucial role in this stabilization. More than 35 countries are either in the process of implementing this minimum tax rate or have plans to do so starting in 2024[1]. This move is designed to curtail the ‘race to the bottom’ in corporate tax rates, where countries continuously lower taxes to attract business, ultimately eroding the global tax base.
Implications for Multinational Corporations
For multinational corporations, this stabilization signifies a more predictable tax environment. The implementation of the minimum tax rate reduces the advantages of shifting profits to low-tax jurisdictions, thus encouraging businesses to focus more on operational efficiencies and less on tax avoidance strategies. According to PwC’s Pillar Two Country Tracker, companies with consolidated revenues exceeding €750 million will be subject to this minimum tax rate, impacting their tax planning and financial strategies[2].
Global Adoption and Legislative Changes
The global adoption of the 15% minimum tax rate has led to a series of legislative changes worldwide. For instance, Australia released draft legislation in March 2024 to implement the OECD’s Pillar Two GloBE rules, including an Income Inclusion Rule (IIR) and an Undertaxed Payment Rule (UTPR)[3]. Similarly, Austria’s Federal Council approved the Tax Amendment Act 2024 in July, aligning its domestic laws with OECD guidelines[3]. These changes signify a collective effort towards a more uniform global tax system.