Global Minimum Tax Rate: Policies of Economic Nationalism can Cause a Global Recession

by Eli Mshomi

The Global Minimum Tax Rate is all set to become a reality as Ireland, the major hurdle in the deal, succumbed in front of the global giants.

With this, 136 countries are now on the same page to implement a minimum 15% tax on business corporations, which otherwise could be used to reroute their profits by shifting their physical presence in tax havens.

As the United States has to approve the deal through Congress, Republicans have already vowed not to support any such measure that is intended to increase the taxation on businesses.

The global minimum tax rates have been in discussions for more than a decade now; however, the arrival of President Joe Biden catalyzed this effort exponentially as he pledged to raise taxes on businesses in his country, too, during his election campaign.

The 15% Tax on big corporations can encourage many corporations to roll back their investments which can also create unprecedented unemployment.

The 15% Tax on big corporations can encourage many corporations to roll back their investments which can also create unprecedented unemployment.

More Taxes, Less Money to Businesses: A Global Recession on Its Way?

All European stakeholders are looking at the US Congress now to see if Biden can get everyone on board to avoid the filibuster to pass the measure through budget reconciliation. If implemented, it will change the way global companies work.

This will be the final nail in the tax haven’s coffin, which has continuously provided a favorable playing field to big corporations to bring economic movement to their countries.

For instance, Apple saved almost $15 billion in European taxes in 2016 only, a hefty amount which was enough to raise the eyebrows of many financial stakeholders in the European Union. 

The tax-intensive regimes are a big fan of these procedures, as they blame tax havens for robbing the money. Ireland and other tax havens also provided feasible avenues to big corporations to move their physical presence to their countries while continuing to earn their profits from across the globe.

However, with the introduction of the Global Minimum Tax rate, the companies will have to pay taxes in countries where they do business irrespective of the location of their physical presence.

This is a significant measure in the international political economy that has the potential to retreat globalization amid the time when the world is already suffering from popular and nationalist voices.

As the companies have no incentive to get benefits from the tax havens now, they are unlikely to go there, which can bring unemployment in these countries in big numbers.

Big tech giants are at the center of this historic agreement, as they operate worldwide without the presence of physical offices in most of the countries.

This indicates that such companies will need to pay taxes in virtually every country of the world. The likes of Google, Facebook, and Apple are the ultimate losers, as the global tech giants are already under scrutiny by the US Congress. The calls for breaking up the big techs into smaller entities are now coupled with grabbing more taxes from them.

Big tech giants have much to lose in the Global Minimum Tax regimes as they do business globally without any physical presence out there.

Big tech giants have much to lose in the Global Minimum Tax regimes as they do business globally without any physical presence out there.

Global Minimum Tax Rate: A Step to Strain Big Corporations

Mercantilism and economic nationalism are quite evident from this agreement, as the pursuit for more and more profit from companies can discourage investors from putting additional money into the business circuit.

Whether or not the world would see an economic recession from this decision is a separate debate and will eventually be sorted out once the agreement comes into practice in the future.

However, the incentives given to multinational and transnational institutions will stand canceled with the help of these nationalistic agreements.

Keeping all the countries to stick to the agreement will be yet another important task for the proper implementation of the Minimum Global Taxation program.

If some countries back out, revising the agreement can take time, and taxation is an issue that is omnipresent and cannot afford any type of hindrance in the process.

The international global economies are changing and can alert business owners to roll back their investments to avoid excess taxation.

 

Final Thoughts

Despite the fact that 136 countries have signed the agreement, many countries are still out of it, which will not be legally bound by any such measure.

Even though the countries which signed the deal comprise almost 90% of the global GDP, the business owners can also try to build headquarters in countries that have not signed the deal to give them something back for favoring these companies.

This can provide more countries to leave the agreement and come out of the agreement. But whatever happens can only be done once the Biden administration gets the deal passed from Congress, which is itself a herculean task.

What’s your Reaction?
+1
0
+1
0
+1
0
+1
0
+1
0
+1
0
+1
0

You may also like

Our independent journalism is a powerful tool to spark social debate about US politics, social and racial injustices, foreign affairs, and human rights across the world.

Contact Us

© 2021 – Mshomi L.L.C – All rights reserved