Nine countries are rejecting the Biden administration’s proposed “global minimum tax.”
During last month’s meeting of the G7, President Biden and other world leaders endorsed a “strong global minimum tax” of at least 15%. The White House called the policy “a critical step towards ending the decades-long race to the bottom that pushes nations to compete over who can offer the lowest tax rate to large corporations at the expense of protecting workers, investing in infrastructure, and growing the middle class.”
However, smaller nations — which compete with larger powers by minimizing taxes and regulations — are beginning to reject the deal.
As Fox Business reports, only 130 of the 139 Organization for Economic Cooperation and Development member nations signed the tentative framework. Barbados, Estonia, Hungary, Ireland, Kenya, Nigeria, Sri Lanka, St. Vincent, Peru, and the Grenadines have so far refused to endorse the tax.
Resistance from Estonia, Hungary, and Ireland may pose an especially significant threat to the deal, as the European Union requires unanimous consent for its adoption.
“Ireland expressed our broad support for the agreement on Pillar Two but noting our reservation about the proposal for a global minimum effective tax rate of ‘at least 15%.’ As a result of this reservation, Ireland is not in a position to join the consensus,” explained Paschal Donohoe, Minister of Finance for Ireland, which has a 12.5% corporate tax rate.
Finance ministers for Hungary and Estonia — which have corporate tax rates of 9% and 14% to 20%, respectively — issued similar statements.
When the initial global minimum tax framework was unveiled, Donohoe explained that “small countries… need to be able to use tax policy as a legitimate lever to compensate for advantages of scale, location, resources, industrial heritage, and the real, material and persistent advantage enjoyed by larger countries.”
As Donohoe noted, developing countries do not have the same levels of infrastructure or human capital as advanced economies. Many also lack a commitment to the rule of law, property rights, independent judiciaries, and other institutions that attract foreign business.
For the past half-century, many small nations have therefore cut taxes in order to rise out of poverty. The United Arab Emirates — which has a tax burden that amounts to only 0.1% of total domestic income — saw its economy multiply by a factor of thirty-six since 1971. Meanwhile, South Korea fostered its citizens’ entrepreneurial spirit through ample educational opportunities and a sound legal system over the past several decades — even as their North Korean neighbors continue to live in destitution.