Significant Costs, Limited Benefits: A Global Minimum Tax in Germany

In order to curb tax-motivated profit shifting and limit international tax competition, 137 signatory countries to the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) agreed in 2021 to introduce a global minimum tax on multinational corporations. At first glance, the introduction of the minimum tax would effectively limit international tax competition to a rate of 15%. However, this would require the global implementation of the scheme, as well as the harmonization of tax-base calculation methods. Fulfilment of these conditions is unrealistic, however, due to non-cooperative countries as well as current political tensions. In addition, high administrative and compliance costs would result. Our estimates show that the additional tax declaration costs for affected German corporations would amount to around 319 million euros for implementation and to around 100 million euros annually for ongoing compliance. In September 2022, the German government announced that, if necessary, Germany will unilaterally introduce the global minimum tax scheme. This is not advisable, however, since a unilateral move would not reduce tax-motivated profit shifting or international tax competition. At the same time, it would lead to high one-sided costs and a reduction in Germany’s attractiveness as a location for business and investment, while also generating little in the way of new revenues.

Gaul, Johannes, Daniel Klein, Jessica M. Müller, Alina Pfrang, Inga Schulz, Christoph Spengel, Stefan Weck, Sophia Wickel and Sarah Winter (2022), Significant Costs, Limited Benefits: A Global Minimum Tax in Germany , A Global Minimum Tax in Germany, ZEW policy brief No. 22-07, Mannheim