New global tax rate of 15% could increase EU revenue by €80bn

Corporation tax revenue across the EU will increase by more than €80 billion a year under a new global rate of 15 per cent, according to a Paris-based research group.

Using the most recent country-by-country report statistics from the Organisation for Economic Co-operation and Development (OECD), the EU Tax Observatory estimates that high-income countries stand to gain the most from the agreed changes.

That is because most multinational companies have their headquarters in high-income countries, it said.

A global rate of 15 per cent would increase EU corporate tax revenue by more than €80 billion, an increase equivalent to a quarter of current corporate tax revenue in the 27 member states of the EU.

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The US would gain about €57 billion a year. However, the revenue gains would be smaller in developing countries: China would gain €6 billion, South Africa €4 billion and Brazil €1.5 billion.

Many EU states are hoping OECD tax reforms, agreed earlier this month, will boost their Covid-depleted state finances. The think tank’s report, however, cautioned that “substance-based carve-outs” will hit increased revenues from the minimum rate.

Under the terms of the OECD deal, profits equal to 10 per cent of assets plus 8 per cent of payroll are exempt from the proposed minimum tax for the first fiscal year.

These exemptions reduce EU corporate tax revenues by about €19 billion, or 23 per cent on the initial estimated increase.

Irish impact

For Ireland, the observatory calculated that, if levied at 15 per cent as per the OECD rules and allowing for the impact of the "carve-outs", the corporation tax take in 2016 (the year on which the report's assessment is based) would be €10.9 billion rather than the €7.7 billion actually taken in that year.

Irish tax flows have increased significantly since 2016 – they are expected to be €13.9 billion this year – and the think tank was unable to say how a minimum rate would affect this total.

The Department of Finance has previously forecast that Ireland could lose €2 billion in corporation tax revenue from the taxation of sales in other countries by Irish-based multinationals, which is also part of the OECD reform. And it warned the impact could be greater.

Even with the OECD changes, corporate tax revenue in Ireland is still forecast to increase to €14 billion next year and to €15 billion by 2025.