A global minimum corporation tax rate is great, but it still doesn’t level the field

In early June of 2021, a historic agreement on a global minimum corporation tax rate was reached between the member countries in the G7 group. This deal sought to address the ‘race to the bottom’ of ever-decreasing corporate tax rates in some countries as they seek to attract businesses and capital to their borders.

The morally questionable tax avoidance antics of large corporations have long been a source of great annoyance for micro-business owners since, for the vast majority, the blatant unfairness of the existing system that allows huge amounts of tax to be avoided is breathtaking.

Micro business limited company owners don’t have the resources to pursue aggressive tax avoidance strategies and so, in general, pay the full amount. Large corporations engage tax specialists and spend millions to reduce their overall tax liabilities resulting sometimes in the perverse case of micro businesses paying more corporation tax than some global players.

While a G7 agreement is long way off of a global legal requirement, it’s certainly a start and does set the tone for future global discussions to persuade more countries to follow suit. The more countries that agree, the fewer havens of low corporation tax there will be to hide in and provide the home for those aggressive tax avoidance strategies.

So you would think that a global minimum corporation tax rate would be a good thing – right? Well, yes and no.

While it does go a long way to stopping some countries under-cutting others by large margins, there is a real danger that it just sets a target level for the large corporates to aim at. The new global minimum corporation tax rate that has been agreed is 15% – far higher than some multinationals have been paying and so that is surely a good thing, but the UK corporation tax rate for the rest of us is still 19%.

You can bet the large corporates will take this agreement as a green light to aim to pay no more than 15% – and still less than that in some cases – but micro businesses in the UK, often touted as the backbone of the economy, will still be left paying a higher rate of corporation tax in practice.

Don’t misunderstand this. This is not a complaint. Any progressive steps to address aggressive tax avoidance and level the playing field for micro businesses is welcome. A global minimum corporation tax rate can only be a good thing, but the persistent annoyance of an unfair corporation tax system that resource-rich multinationals can manipulate at will still exists and more steps are needed to continue to uniformly apply the rules.

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