There are only two certainties in life: death and taxes. For companies, governments have spent years lowering the impact of the second. Yet the four-decade decline in corporation tax may be reaching an end as advanced economies grapple with the cost of pandemic bailouts. There’s a fly in the ointment: the global tax system is woefully outdated. Based on century-old principles, it creaks under the weight of global corporations’ vast intangible assets and groans as countries compete in a beggar-thy-neighbour game to attract a greater chunk of the spoils. Tax havens cost governments an estimated USD 500-600bn annually, yet international co-operation has proved difficult. Proposals at the OECD for a global minimum tax, given new life by the Biden administration, could begin to fix that.

The US initially pushed for a rate around 21%, but the administration conceded that 15% was acceptable in mid-May. This was hailed as a step forward, although some low-tax jurisdictions remain reticent. Others see new rules for taxation on digital companies as essential for the passage of a global minimum rate. The US has watched on with irritation as digital taxes aimed primarily at Silicon Valley have proliferated. With threats of tariffs flying, giving up tax on some of Facebook’s French revenue might be acceptable if Washington can grab a share from Volkswagen sales in Vermont.

Some multinationals will pay more taxes, but most will re-examine where they pay them. Still, there is a way to go yet. G7 finance ministers meet in June, and it’s hoped a political deal could be reached by July. To get there, the 15% rate could come down further. Reform is driven by a confluence of national self-interest rather than a Damascene revelation about tax-justice, so governments are sure to bicker, and the resulting system will remain complex. Even with pressure on, the implementation will be subject to many more hurdles. Still, it looks like the tax tide is turning. 

Tax avoidance affects many countries and many industries, including insurance. As countries look to close tax loopholes and safe havens that affect tax collection, you can keep up-to-date with the latest insurance regulations that are affected with Axco.