- The Organization for Economic Cooperation and Development recently released a blueprint for an internationally-coordinated minimum tax for multinational enterprises.
- It aims at reaching a global agreement on this in 2021.
- It is not certain that any agreement would cover global shipping.
- The plan would affect longstanding preferential tax treatment that has become one of the financial foundations of maritime business.
As per a recent news article published in the Wall Street Journal, written by Olaf Merk, taxation may be global shipping’s upcoming game changer.
The proposal for a minimum tax
The proposal for a minimum tax is an attempt to address the issue of tax avoidance.
The practice, in which multinational companies take advantage of tax havens to lower their taxes while their business operates in another country, is known in bureaucratic terms as base erosion and profit shifting.
The OECD estimates the practice costs countries between $100 billion and $240 billion in lost revenue, or the equivalent of 4% to 10% of the corporate tax revenue globally.
Aim of OECD
The OECD plan aims to take away the tax incentives by making it possible for tax authorities in the places where the multinational is headquartered to impose a tax to make up for the avoidance through a tax haven.
This would in essence create a global minimum tax.
How much is the minimum earning?
A minimum tax rate of 12.5% of earnings would bring in an additional $2.5 billion a year of tax revenues from the shipping sector alone.
Most of these additional tax revenues would likely flow to states in Europe and Asia.
Reduced importance of flags of convenience
Applying a global minimum tax to the shipping sector would likely reduce the importance of these flags of convenience.
This could also rebalance power within the IMO, with the leverage on decision-making and implementation likely to shift to trading and ship-owning nations with stronger capacity to enforce regulations.
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Source: WSJ
