I agree with you that working in international taxation is a potential cause area for people who want to improve the world. As you mentioned, the international tax regime from the 1920s was not built for a globalized and technological economy. As s result, tax competition among countries and “loopholes” significantly reduce tax revenues in both high-income and low-income countries. Revenue losses result in less government investment in developing policies, such as health and education.
The use of tax havens has increased significantly in the last 30 years. Researcher Gabriel Zucman estimates that American companies in 2015 shifted around half of their foreign revenues to tax havens such as Bermuda and Ireland. The corporate tax rate in Bermuda is zero percent so the profits are essentially not taxed as long as the money remains there. As of 2015, US corporations accumulated more than $2.6 trillion of earnings in foreign subsidiaries, according to the Joint Committee on Taxation. Trump’s tax reform in 2017 introduced a one-time levy of 8% to 15% on this cash, but that is still a much lower tax than the 21-30% domestic corporations must pay on their profits.
As you say, it is hard to estimate how much money is lost to tax avoidance and tax competition each year. The average corporate tax rate was around 50% in 1980, while the average nominal tax rate is 20% today. The effective tax rate is often much lower. There are many reasons why rates have been reduced, but especially the drop from an average of about 30% in 2000 to 20% today is most likely mainly driven by countries’ fear that they will lose investment to other countries if they don’t lower their rates. International tax experiences a coordination problem, similar to the problem of global warming and greenhouse gases.
I became aware of these problems in 2014 and decided to pursue a career in law and international tax. I’ve held internship positions in law firms, the national ministry of finance tax department tax and the NGO Tax Justice Network. I´m currently working in the international tax department of a “Big Four” accounting firm (Big Four = Pwc, Deloitte, KPMG and EY).
I held a six-month internship position at the OECD tax department during the development of the global minimum tax for companies (Pillar 2). I attended both technical meetings where national officials developed the detailed rules of the minimum tax (the working party meetings) and the political meeting where national tax officials agreed on the broad strokes of the global minimum tax (the Steering Group).
The global minimum tax is a large step in the direction of mitigating tax competition between countries. The legislation is in force from 2024 in the EU, the UK and many other countries around the world. The minimum tax rate is 15% and will probably manage to tax most low-taxed profits of large multinational companies around the world. The OECD estimates that the tax will increase annual corporate tax revenues by 220 billion USD, which represents around 9% of total global corporate tax revenues. The tax may allow countries to raise their effective corporate tax rates without the fear of losing investments.
There are many shortcomings with the global minimum tax. The tax rate is only 15% and includes a “substance-based carve-out” that excludes a share of profits connected to tangible assets from the minimum tax. A repeal of the substance-based carve-out and a hike of the tax rate to 20% would increase annual revenues by an additional 220 billion USD according to research by Gabriel Zucman. An increase of the tax rate to 25% - which seems like a reasonable tax rate for companies – would bring in total extra annual revenues of around 700-800 billion USD compared to today. The extra revenue would benefit both high- and low-income countries and increase the capacity to invest in health, education and infrastructure. The United Nations estimates that the world would need to mobilize around 3300-4500 billion USD annually to achieve the 2030 Agenda for sustainable development. The annual development aid is around 200 billion USD, so it seems obvious that low-income countries must finance most of the development themselves. Increased tax revenues is therefore key.
There is no guarantee that the 15% tax rate will increase in the future, so committed work is necessary if one wants to achieve such an outcome. As you stated, possible positions where one can influence the work within international tax is probably as an OECD official or a national delegate to the OECD (via national ministries of finance). An entry-level job in the international tax department of a law firm is a possible first step in such a career. I also think more political work could be highly effective. The technical work for the global minimum tax is almost over, and the decision to raise the tax rate is purely political. Political influence could be exercised through the work at an NGO, through a political party, or perhaps via setting the agenda as a researcher within international tax.
You also mention the work of Tax Inspectors Without Borders. Building better tax administration capacity in low-income countries is important if these countries want to increase the amount of governmental revenue that can be spent on national development. Assistance to low-income countries is currently carried out through international organizations such as the IMF, OECD and the United Nations, and directly through programs between tax administrations in high-income countries and low-income countries.
I would be interested in more contact about these issues, so maybe you, Gemma Paterson, me, and others should communicate more about these issues.
Hi Johannes, thanks for your comment. Glad to hear you’re working in this area too and thanks for providing that additional context for the global minimum tax.
One difficulty in international tax policy is that it can be really hard to work out what good tax policy looks like, apart from any national interests. I’ve only been loosely following the global minimum tax and I understand there are competing views as to whether the minimum tax is a good idea and what level it should be set at (i.e. a higher rate is not necessarily always better).
Personally I’m agnostic on this because I simply don’t know enough about the various arguments and counterarguments, which is why my original post focused at a higher level on international tax policy being a relatively neglected cause area and on how international tax policy development is dominated by developed countries focusing on their own national interest (two points I feel more confident about).
But I’d be keen to discuss this and other tax issues with globally-minded people like yourself. I’ll send you a private message :)
Thank you for this post, tax geek!
I agree with you that working in international taxation is a potential cause area for people who want to improve the world. As you mentioned, the international tax regime from the 1920s was not built for a globalized and technological economy. As s result, tax competition among countries and “loopholes” significantly reduce tax revenues in both high-income and low-income countries. Revenue losses result in less government investment in developing policies, such as health and education.
The use of tax havens has increased significantly in the last 30 years. Researcher Gabriel Zucman estimates that American companies in 2015 shifted around half of their foreign revenues to tax havens such as Bermuda and Ireland. The corporate tax rate in Bermuda is zero percent so the profits are essentially not taxed as long as the money remains there. As of 2015, US corporations accumulated more than $2.6 trillion of earnings in foreign subsidiaries, according to the Joint Committee on Taxation. Trump’s tax reform in 2017 introduced a one-time levy of 8% to 15% on this cash, but that is still a much lower tax than the 21-30% domestic corporations must pay on their profits.
As you say, it is hard to estimate how much money is lost to tax avoidance and tax competition each year. The average corporate tax rate was around 50% in 1980, while the average nominal tax rate is 20% today. The effective tax rate is often much lower. There are many reasons why rates have been reduced, but especially the drop from an average of about 30% in 2000 to 20% today is most likely mainly driven by countries’ fear that they will lose investment to other countries if they don’t lower their rates. International tax experiences a coordination problem, similar to the problem of global warming and greenhouse gases.
I became aware of these problems in 2014 and decided to pursue a career in law and international tax. I’ve held internship positions in law firms, the national ministry of finance tax department tax and the NGO Tax Justice Network. I´m currently working in the international tax department of a “Big Four” accounting firm (Big Four = Pwc, Deloitte, KPMG and EY).
I held a six-month internship position at the OECD tax department during the development of the global minimum tax for companies (Pillar 2). I attended both technical meetings where national officials developed the detailed rules of the minimum tax (the working party meetings) and the political meeting where national tax officials agreed on the broad strokes of the global minimum tax (the Steering Group).
The global minimum tax is a large step in the direction of mitigating tax competition between countries. The legislation is in force from 2024 in the EU, the UK and many other countries around the world. The minimum tax rate is 15% and will probably manage to tax most low-taxed profits of large multinational companies around the world. The OECD estimates that the tax will increase annual corporate tax revenues by 220 billion USD, which represents around 9% of total global corporate tax revenues. The tax may allow countries to raise their effective corporate tax rates without the fear of losing investments.
There are many shortcomings with the global minimum tax. The tax rate is only 15% and includes a “substance-based carve-out” that excludes a share of profits connected to tangible assets from the minimum tax. A repeal of the substance-based carve-out and a hike of the tax rate to 20% would increase annual revenues by an additional 220 billion USD according to research by Gabriel Zucman. An increase of the tax rate to 25% - which seems like a reasonable tax rate for companies – would bring in total extra annual revenues of around 700-800 billion USD compared to today. The extra revenue would benefit both high- and low-income countries and increase the capacity to invest in health, education and infrastructure. The United Nations estimates that the world would need to mobilize around 3300-4500 billion USD annually to achieve the 2030 Agenda for sustainable development. The annual development aid is around 200 billion USD, so it seems obvious that low-income countries must finance most of the development themselves. Increased tax revenues is therefore key.
There is no guarantee that the 15% tax rate will increase in the future, so committed work is necessary if one wants to achieve such an outcome. As you stated, possible positions where one can influence the work within international tax is probably as an OECD official or a national delegate to the OECD (via national ministries of finance). An entry-level job in the international tax department of a law firm is a possible first step in such a career. I also think more political work could be highly effective. The technical work for the global minimum tax is almost over, and the decision to raise the tax rate is purely political. Political influence could be exercised through the work at an NGO, through a political party, or perhaps via setting the agenda as a researcher within international tax.
You also mention the work of Tax Inspectors Without Borders. Building better tax administration capacity in low-income countries is important if these countries want to increase the amount of governmental revenue that can be spent on national development. Assistance to low-income countries is currently carried out through international organizations such as the IMF, OECD and the United Nations, and directly through programs between tax administrations in high-income countries and low-income countries.
I would be interested in more contact about these issues, so maybe you, Gemma Paterson, me, and others should communicate more about these issues.
Hi Johannes, thanks for your comment. Glad to hear you’re working in this area too and thanks for providing that additional context for the global minimum tax.
One difficulty in international tax policy is that it can be really hard to work out what good tax policy looks like, apart from any national interests. I’ve only been loosely following the global minimum tax and I understand there are competing views as to whether the minimum tax is a good idea and what level it should be set at (i.e. a higher rate is not necessarily always better).
Personally I’m agnostic on this because I simply don’t know enough about the various arguments and counterarguments, which is why my original post focused at a higher level on international tax policy being a relatively neglected cause area and on how international tax policy development is dominated by developed countries focusing on their own national interest (two points I feel more confident about).
But I’d be keen to discuss this and other tax issues with globally-minded people like yourself. I’ll send you a private message :)