The proposed global minimum tax may be a great idea that has found widespread currency, but is likely to come at a cost. The proposed introduction of a minimum tax of 15% on the foreign profits of the largest multinational enterprises (MNEs) has major implications for international investment and investment policy, UNCTAD has said in a report.
The 2022 edition of UNCTAD's annual World Investment Report, published on 9 June, is subtitled 'International tax reforms and sustainable investment', and provides a guide for policymakers to navigate the complex new tax rules and to adjust their investment strategies. Chapter II of report, titled ' The Impact of a Global Minumum Tax on FDI, serves as a warning on the collateral damage such a tax can cause.
If and when enforced, the global minimum tax will work well in many countries, and won't in many others. The word of caution was underlined in the press release that accompanied the release of the report. UNCTAD Secretary-General Rebeca Grynspan was quoted as saying: "Developing countries face constraints in their responses to the reforms, because of a lack of technical capacity to deal with the complexity of the tax changes, and because of investment treaty commitments that could hinder effective fiscal policy action. The international community has the obligation to help."