Jul 21, 2021
In the past few months, reports of major, surprising breakthroughs in international tax agreements repeatedly grabbed global media headlines. It started with Janet Yellen, the U.S. Secretary of the Treasury, calling in April for a “global minimum corporate tax” in conjunction with the Biden Administration’s proposal to raise the U.S. corporate tax rate from 21% to 28%. On June 5, the Group of Seven countries—which include Canada—issued a joint communique expressing support for Yellen’s plan, with the aim of introducing a global minimum corporate tax rate of 15%. This, it has widely been claimed, would end global tax competition as we know it: most countries in the world will have corporate income tax rates of at least 15%.
Before July 1, many wondered what China’s role would be in these new international agreements. Most Chinese companies currently enjoy a corporate tax rate of 5% or 10%, and corporate tax competition is intense among different regions in China. Moreover, China has global ambitions both in terms of investing overseas and nurturing domestic financial centers. Low tax rates have been a prominent policy instrument used by other countries with similar ambitions. Will China stymie a global deal?
Evidence of China’s response was going to come by July 9, when the Group of 20 countries—including China—were scheduled to gather in Venice. However, on July 1, at the same time as the global press covered China’s commemoration of the Chinese Communist Party’s 100th anniversary, the international business press reported an announcement of the Organization for Economic Cooperation and Development (OECD). In preparatory work for the G20, the OECD announced that 130 countries agreed to the outlines of an international tax agreement consistent with the G-7’s call: China was among these countries. Therefore it came as no surprise that the G-20 endorsed the global minimum tax on July 9. It is clear that China did not want to leave anyone in suspense on the proposed international tax agreements. The question whether there is a “China test” for global tax agreement was quickly answered in the negative.
Or has it? In a cover story published this week in the U.S. journal Tax Notes International, Professor Wei Cui explores the following question: what does China want from international tax reform? The article is available to the general public. In a separate op ed piece in The Globe and Mail, Cui explains why there is less than meets the eye in the OECD’s July 1 announcement.