“It Is Essential to Counteract the Risk of Double Taxation”

Support is growing for the introduction of a global minimum tax on corporate profits. This was clearly demonstrated at the recent meeting of the G7 finance ministers. The Federation of German Industries (BDI) took this as an opportunity to organise a panel discussion on “Global Minimum Tax – Consequences for the German Economy” on 18 June 2021, including Christopher Ludwig, a member of the team of tax experts led by Professor Christoph Spengel at ZEW Mannheim and the University of Mannheim. In recent months, the tax experts have closely examined and evaluated the OECD’s reform proposals. Spengel, who worked on a BDI paper on this topic, comments on the global minimum tax:

“It makes sense to adopt uniform international standards such as a global minimum tax. This is the only way to prevent unilateral efforts such as digital levies and an increasing fragmentation of international tax policy. However, numerous controversial and complex details still need to be resolved before an actual agreement can be reached. For example, a uniform global minimum tax can thwart tax incentives to promote innovation and new technologies that have been deliberately implemented in various countries. This certainly needs to be readjusted. In addition, it must be taken into account that instruments that have a comparable effect to a minimum tax, such as the controlled foreign corporation regulation and the interest barrier set by the Anti-Tax Avoidance Directive, are already anchored in all European tax systems. It is therefore essential to counteract the risk of double taxation.”

With regard to profit shifting by companies in the event of the implementation of the OECD proposals, Christopher Ludwig points out the following in his opening statement at the BDI panel discussion:

“The redistribution of taxation rights between states, envisaged in the OECD’s so-called ‘unified approach’, aims primarily at granting the countries in which the users of products and services are located a greater share of the tax revenue than before. Since this approach focuses solely on the largest companies, fewer than ten companies in Germany would be affected. For the German treasury, the additional tax revenue generated by such a reform would be negligible. However, the increased administrative burden for companies and tax authorities resulting from the unified approach must not be underestimated. Therefore, it should be examined very carefully where there is a strong imbalance between costs and benefits.”