Here’s how this gets broken: The more countries faithfully adhere to the global corporate minimum, the stronger the incentive becomes for a “cheating” country to lower its rate.
The tax haven could even get around an “enforcer” or governing board. For instance, such a country might change what it considers to be “profit” so that you’re paying $2 on $100 of revenue, whereas in the neighboring country you’d be paying $6. Same nominal tax rate, different effective tax rates.
There are even more ways to play this: “Sure, we tax you at the required 20%, but you can then direct how those funds are used to reduce costs you’d otherwise have to pay directly.”
And this happens a ton— see the WTO and “effective” but not nominal tariffs.
Whether or not we see such a harmonized tax rate emerge and even if we could find a way to have some governing body try to “enforce” it, you’ll still see countries lowering their effective tax rates to lure firms or bolster growth. I bet there’s a maximum sustainable effective corporate tax rate, but I have no idea what it is (and for all I know it could be zero or negative).
The tax haven could even get around an “enforcer” or governing board. For instance, such a country might change what it considers to be “profit” so that you’re paying $2 on $100 of revenue, whereas in the neighboring country you’d be paying $6. Same nominal tax rate, different effective tax rates. There are even more ways to play this: “Sure, we tax you at the required 20%, but you can then direct how those funds are used to reduce costs you’d otherwise have to pay directly.”
And this happens a ton— see the WTO and “effective” but not nominal tariffs.
Whether or not we see such a harmonized tax rate emerge and even if we could find a way to have some governing body try to “enforce” it, you’ll still see countries lowering their effective tax rates to lure firms or bolster growth. I bet there’s a maximum sustainable effective corporate tax rate, but I have no idea what it is (and for all I know it could be zero or negative).