Corporate tax rates are going up in 2024

The coming new year will mark a new dawn for the taxation of large multinationals. Rules setting a minimum level of taxation for these businesses will start applying in jurisdictions across the world.

This major development will finally put a floor under the harmful competition that, over the past four decades, has created a relentless downward spiral in statutory corporate tax rates worldwide.

Since 1980, these have decreased from an average of 40 to 23 per cent; in Europe the fall has been even greater, from 45 to just under 20 per cent. In many cases, additional sweeteners, preferential rates and unacceptable loopholes allowing profits to be shifted to zero or low-tax jurisdictions have resulted in effective tax rates well below those headline figures.

As the extent of such practices has come to light, the general public and owners of smaller businesses have become increasingly indignant.

The reform that is about to take effect is one of the two elements (or ‘Pillar 2’) at the basis of a historic breakthrough achieved in 2021 in the OECD’s so-called “inclusive framework”. This agreement was the outcome of years of painstaking international negotiations and an important victory for multilateralism.

It establishes a global minimum corporate effective tax rate of 15 per cent for multinational companies with annual revenues of more than €750mn. There are more than 140 countries on board — almost three quarters of all UN members, representing over 90 per cent of the global corporate tax base.

The EU has played a crucial role in spearheading this effort. And we are now leading the way in turning the 2021 agreement into reality. One year ago, we were among the first jurisdictions in the world to approve legislation implementing the global minimum tax. Today, almost all EU member states are ready to apply the new rules from the start of 2024. The European Commission will continue to monitor the timely and full implementation of this crucial reform. We stand ready to take action if needed to address any delays or inconsistencies.

The EU’s rapid move to enact the global minimum tax is spurring others to align their own laws. It is the responsibility of all governments to step up the pace of these efforts. We have also seen some zero or low-tax jurisdictions introducing or raising corporate income taxes and I trust that in 2024 we will see further — and where necessary, more ambitious — moves in this sense.

We will work with our partners around the world to encourage as swift and wide an application as possible of the new framework. This includes assisting developing countries in their implementation efforts with technical, financial, and capacity-building support.

At a time when public budgets are strained and the need to invest in the green, digital and social transitions is more pressing than ever, the global minimum tax rate will allow governments to raise much-needed additional revenues.

The OECD estimates the annual gains for treasuries around the world at $220bn, or 9 per cent of global corporate tax revenues.