“The current proposals are a sledgehammer to crack a nut – and will probably miss their target.
“For a start, companies are only legal entities and cannot bear the economic burden of taxation themselves. Any increase in corporation tax would inevitably be passed on to real people, including consumers and employees in the form of higher prices and lower wages.
“The problem of domestic tax base erosion and profit shifting (BEPS) is also exaggerated. It is true that some companies may exploit different tax rules in different countries, but national tax authorities already have ways to close these loopholes.
“There are also practical problems with the new proposals.
“If the global minimum tax rate is too high, it would undermine healthy tax competition between countries.
“If it is too low, it would not have any significant impact anyway. It has been suggested that the global minimum corporate tax rate might be set at just 15 per cent, but only three OECD countries (Ireland, Chile and Hungary) currently have a combined corporate income tax rate below this level.
“The minimum tax would also have to take account of all the various allowances and other differences in national tax systems, which can drive a large wedge between the headline rates and the effective rates that companies actually pay. This would be a bureaucratic nightmare.
“The other key element of the proposals is that companies should pay more corporation tax on the basis of where sales are made, or jobs are created. This would turn taxes on profits into taxes on economic activity itself, which would make people worse off. It would also be another bureaucratic nightmare.”
Notes to editors
Contact: Emily Carver, Head of Media, 07715942731
IEA spokespeople are available for futher comment and interview.
For further IEA reading on corporation tax, click here.