Global minimum corporate tax rate - an idea whose time has come?

It's interesting that the idea of a global minimum corporate tax rate is finally coming into the light. The idea has, of course, been around for years, but now, with Janet Yellen and the USA showing some serious interest, it has entered into a whole new plane.

At its simplest, the idea is for an international agreement to ensure that corporations worldwide are taxed at at least some minimum rate, say 21%. Yellen says that this would "stop the race to the bottom", establish a "more level playing field in the taxation of multinational corporations", and ensure that "governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government". 

In a minimum corporate tax rate world, countries like Canada that feel obliged to cut tax rates every time the USA does, to lower levels than they really want to, in order to remain "competitive" (i.e. to butter up global multinational companies), maybe wouldn't feel the pressure to do that. According to the IMF, average corporate tax rates have declined from 49% in 1985 to 24% today.

It would also stymie the legal but morally ambiguous activities of global corporations like Apple, Google and Starbucks in using legal loopholes in fragmented global taxation regimes to pay less tax. These huge and profitable companies shift billions of dollars in profits every year to low-tax havens like Ireland, the Netherlands, Singapore, Luxembourg and various Caribbean islands.

It all sounds eminently sensible and admirable, no? And with the USA planning to increase its corporate tax from 21% to 28% (4 years after Donald Trump reduced it from 35%), Britain planning to increase its corporation tax from 19% to 25%, and most other countries surely mulling tax increases to pay for the huge outlays needed to fight the economic effects of the coronavirus, there has probably never been a better time. Plus, the G7 and G20 are both meeting (virtually) this month.

The IMF has long been un favour of it, as has the OECD. The IMF estimates that tax havens cost governments between $500 billion and $600 billion each year, and some $200 billion of that relates to lower income economies (this is not just a rich country issue). Hell, even Canada's Justin Trudeau has said he will seriously consider it.

Of course, not everyone is on board, particularly not those countries like Ireland that have set up their whole tax system to allow multinationals to avoid tax. And people like Andrew Coyne, the Globe and Mail's resident neoconservative, who waxed lyrical in his condemnation of the idea recently, employing grandiose (and totally inappropriate) phrases like "Ozymandian" to indicate the depth of his displeasure, as well as emotive (and equally inappropriate) trigger words like "global tax cartel", "collusion" and "extortion"

Also, such a global agreement would take forever to negotiate. What would cause Ireland, for example, to embrace it (some quid pro quo may be required, but what?) And you can see it getting quite complicated: Canada, for example, has a federal corporate tax rate of just 15%, but it also has provincial corporate tax in addition of anywhere from 8% and 15% (yielding an overall tax rate of between 23% and 30%). 

But just because something is difficult doesn't mean it is not also the right thing to do.