The World Bank director, David Malpass, has expressed his displeasure in the move taken by world leaders to set a high global minimum tax rate for multinationals.
The notice comes only a few days after the US Treasury Secretary Janet Yellen threw the American government’s weight behind a campaign for a global minimum tax rate. Yellen hinted that she was working with G20 economies to set a global minimum that would put a halt to the “30-year race to the bottom on corporate tax rates.”
In an interview, Malpass revealed that he was wary of the new rules citing the fact that they would hinder developing economies’ ability to attract investors. The President of the World Bank explained that he was strongly embarrassed by the 21% global minimum rate proposed by Janet Yellen.
It is expected that the G20 officials will arrive at a global tax deal by around mid-2022. Even though Yellen was in favor of legislation that caps the minimum tax rate at 21%, her boss, President Joe Biden, is said to have proposed another corporate tax increase to 28%.
Why Set A Global Tax Rate
The United States is considering setting a high global tax minimum to discourage their profits and tax revenues to their low tax counterparts in other countries. If passed, the proposed tax rates will be applied to corporates regardless of where they make their sales.
The G20 industrialized economies are looking at the proposal by Yellen. But their interests may vary and conflict with the United States. They need their economies to grow and must attract capital and corporations to their lands as well. While the United States may seek to set global tax rates, it may not be the best policy for others around the world.
It is clear that low-income countries have made massive gains from multinationals dealing in intangible sources like royalties on intellectual; property, software, and drug patents as corporations have sought to migrate to these national jurisdictions. The law notes the developed countries with a ground to tax the multinational that move to low-income countries with the aim of avoiding the excessive taxes back at home.
Malpass Presents A Critical Point on Global Tax Rate Proposal
Reacting to Yullen’s proposal for a 21% global minimum tax, Mr. Malpass said it “strikes me as a high corporate rate, but this is not my call”.
Mr. Malpass has a few points that developing countries across the world would agree with as they seek to draw more resources and create opportunities. If they go according to the plan, they lose another critical advantage and set in motion policies that weaken their competitive advantage.
More taxes are not favorable to stimulating economies around the world. It is necessary for corporations to have places where they can innovate, create, and find ways to increase their value, thereby, benefiting shareholders and the general markets. The issue is that global tax policies creates a mono-culture and can lower overall appeal and create further economic problems for countries that require more economic activity from multinational corporations.