London Daily

Focus on the big picture.
Wednesday, Jan 28, 2026

Why the new global tax regime is unlikely to be clear, simple or good

Why the new global tax regime is unlikely to be clear, simple or good

Meant to extract more tax from the world’s richest multinationals, the proposed tax rules are already being strangled by talk of caveats and carve-outs. In short, the new rules would probably make little difference to total government revenues.

The headline writers make it all sound so clear, simple and good: “World’s leading economies agree on global minimum corporate tax rate” said the Financial Times.

In truth, the tax plan is more likely to be messy, strangled by caveats and carve-outs, and a veritable feast for tax avoidance experts. At worst, it will crash and burn. At best, it seems likely to have little impact either on the taxes that companies pay or the revenues that cash-strapped governments hope to pick up.

This practical reality has not suppressed the breathless excitement after Group of 7 leaders provided a critical push to the long-wrangled initiative at their summit in Cornwall, Britain. The Financial Times said the proposed tax reforms should be “genuinely considered historic” and that they would “change a century’s worth of tax rules to ensure the largest multinationals pay more tax where they operate”.

However, the newspaper’s European economics commentator Martin Sandbu argued that the outcome “is mixed at best” and that “governments have missed an opportunity to simplify the rules, leaving fertile ground for new and clever techniques to circumvent their intention”.

The same newspaper’s economic team was even more underwhelmed: “If some of the most powerful multinationals have had a bomb put under them, you wouldn’t know it from their reactions – or those of investors.”

Britain’s Chancellor of the Exchequer Rishi Sunak speaks at a meeting of G7 finance ministers at Lancaster House in London on June 4, ahead of the Cornwall summit, where leaders agreed on a minimum corporate tax rate proposal.


Their report said “the plan could upend some of the corporate world’s most widely-used avoidance strategies, while also throwing up a complex new set of rules for tax planners to get their teeth into”.

Scratch the surface of the proposed new tax rules, which had their origins in European frustration over the small tax payments made by the world’s most profitable technology groups, and you crash into complexity.

The proposed deal comprises two pillars. Most analysts like to tackle the second pillar first: a plan to set a minimum corporate tax rate worldwide at 15 per cent. That sounds straightforward, but it is not. For starters, there is serious dispute over whether the minimum tax rate should be set higher, perhaps up to 25 per cent.

The minimum rate would apply only to the world’s 100 largest multinationals, with turnover exceeding US$20 billion. There are already carve-outs for financial services and natural resources, and more battles over other carve-outs can be expected.

Taking the Fortune Global 500 list as an indicator of the companies likely to be targeted, you find that over 20 mainland Chinese companies sit in the top 100. But most of these are heavily focused on China’s domestic economy. International business accounts for little of their revenue. Unsurprisingly, most are unconcerned by the new tax plans, and the Chinese government has been relaxed about signing up.

Multinationals will only be bound by the new rules if they have a pre-tax profit margin of over 10 per cent, which is likely to encourage companies to raise reinvestment to suppress profit margins.

Intriguingly, the G7 has decided that the highly-profitable Amazon Web Services will be subject to the new rules even though its parent reports profits below 10 per cent. But what kind of cat-and-mouse games are going to be played by other giant multinationals over where profits and losses sit between the parent and the subsidiaries? Tax advisers must already be rubbing their hands.

Andy Jassy, who took over as Amazon CEO in July, at an event in Las Vegas on December 5, 2019, when he was heading Amazon Web Services. AWS is Amazon’s cloud computing business.


As for the first pillar, which is focused on getting multinationals to pay taxes where they generate their revenue, rather than in the low-tax domiciles they so often select, the rules quickly become similarly obscure. The digital services tax introduced over the past year by governments such France and Britain to claw more taxes from the large US tech companies is promptly submerged.

Indeed, for the United States, dropping the digital services tax is likely to be a formal precondition of support for the new tax rules. At the end of the day, only 20-30 per cent of so-called residual profit above the 10 per cent threshold would be subject to tax in the countries where it is generated.

Even after endorsement of the plan at the G20 over the past weekend, there remains a long and difficult path ahead – not least, passage through a truculent US Congress. A meeting of 130 countries is to be called later in the year, and implementation will be 2023 at earliest.

If the new rules pass successfully, the main reason for this may be that for most economies, the changes make barely any difference. Look at where the US federal government gets most of its revenue, and corporate taxes account for a paltry 7 per cent. Individual taxes account for 50 per cent, and social insurance and payroll taxes 36 per cent. That perhaps explains why the Biden administration is pressing for corporate taxes to be raised to 28 per cent.


The picture in Britain is similar: 6 per cent of revenues last year came from corporate taxes, with 23.4 per cent from individual taxes, and 16 per cent from value-added tax.


Look at China and Hong Kong, and the picture is a little different: corporate taxes already accounted for 21.8 per cent of Chinese tax revenues in 2019, individual taxes 6 per cent and excise and value-added taxes 52.9 per cent. For Hong Kong, corporate taxes accounted for 24 per cent of revenues in 2020-21, land premiums 16 per cent, stamp duty 15.7 per cent, and individual taxes 13 per cent.

In short, the new rules would probably make little difference to total revenues, even with rising pressure on governments to raise more revenues as pandemic borrowings have to be paid down.

Perhaps it is naive or foolish to expect anything different. Governments worldwide remain ferociously independent-minded over how they can raise taxes, how much they raise, and how they spend. For them to allow new multilateral rules to fetter this jealously guarded power would be political suicide.

So it should be no surprise, despite the melodramatic headlines, that the new rules are likely to change little. Tax rules will remain monstrously complex. Tax “management” will remain endemic. Some things in life cannot change.

Newsletter

Related Articles

0:00
0:00
Close
Starmer Seeks Economic Gains From China Visit While Navigating US Diplomatic Sensitivities
Starmer Says China Visit Will Deliver Economic Benefits as He Prepares to Meet Xi Jinping
UK Prime Minister Starmer Arrives in China to Bolster Trade and Warn Firms of Strategic Opportunities
The AI Hiring Doom Loop — Algorithmic Recruiting Filters Out Top Talent and Rewards Average or Fake Candidates
Amazon to Cut 16,000 Corporate Jobs After Earlier 14,000 Reduction, Citing Streamlining and AI Investment
Federal Reserve Holds Interest Rate at 3.75% as Powell Faces DOJ Criminal Investigation During 2026 Decision
Putin’s Four-Year Ukraine Invasion Cost: Russia’s Mass Casualty Attrition and the Donbas Security-Guarantee Tradeoff
Wall Street Bets on Strong US Growth and Currency Moves as Dollar Slips After Trump Comments
UK Prime Minister Traveled to China Using Temporary Phones and Laptops to Limit Espionage Risks
Google’s $68 Million Voice Assistant Settlement Exposes Incentives That Reward Over-Collection
Kim Kardashian Admits Faking Paparazzi Visit to Britney Spears for Fame in Early 2000s
UPS to Cut 30,000 More Jobs by 2026 Amid Shift to High-Margin Deliveries
France Plans to Replace Teams and Zoom Across Government With Homegrown Visio by 2027
Trump Removes Minneapolis Deportation Operation Commander After Fatal Shooting of Protester
Iran’s Elite Wealth Abroad and Sanctions Leakage: How Offshore Luxury Sustains Regime Resilience
U.S. Central Command Announces Regional Air Exercise as Iran Unveils Drone Carrier Footage
Four Arrested in Andhra Pradesh Over Alleged HIV-Contaminated Injection Attack on Doctor
Hot Drinks, Hidden Particles: How Disposable Cups Quietly Increase Microplastic Exposure
UK Banks Pledge £11 Billion Lending Package to Help Firms Expand Overseas
Suella Braverman Defects to Reform UK, Accusing Conservatives of Betrayal on Core Policies
Melania Trump Documentary Sees Limited Box Office Traction in UK Cinemas
Meta and EssilorLuxottica Ray-Ban Smart Glasses and the Non-Consensual Public Recording Economy
WhatsApp Develops New Meta AI Features to Enhance User Control
Germany Considers Gold Reserves Amidst Rising Tensions with the U.S.
Michael Schumacher Shows Significant Improvement in Health Status
Greenland’s NATO Stress Test: Coercion, Credibility, and the New Arctic Bargaining Game
Diego Garcia and the Chagos Dispute: When Decolonization Collides With Alliance Power
Trump Claims “Total” U.S. Access to Greenland as NATO Weighs Arctic Basing Rights and Deterrence
Air France and KLM Suspend Multiple Middle East Routes as Regional Tensions Disrupt Aviation
U.S. winter storm triggers 13,000-plus flight cancellations and 160,000 power outages
Poland delays euro adoption as Domański cites $1tn economy and zloty advantage
White House: Trump warns Canada of 100% tariff if Carney finalizes China trade deal
PLA opens CMC probe of Zhang Youxia, Liu Zhenli over Xi authority and discipline violations
ICE and DHS immigration raids in Minneapolis: the use-of-force accountability crisis in mass deportation enforcement
UK’s Starmer and Trump Agree on Urgent Need to Bolster Arctic Security
Starmer Breaks Diplomatic Restraint With Firm Rebuke of Trump, Seizing Chance to Advocate for Europe
UK Finance Minister Reeves to Join Starmer on China Visit to Bolster Trade and Economic Ties
Prince Harry Says Sacrifices of NATO Forces in Afghanistan Deserve ‘Respect’ After Trump Remarks
Barron Trump Emerges as Key Remote Witness in UK Assault and Rape Trial
Nigel Farage Attended Davos 2026 Using HP Trust Delegate Pass Linked to Sasan Ghandehari
Gold Jumps More Than 8% in a Week as the Dollar Slides Amid Greenland Tariff Dispute
BlackRock Executive Rick Rieder Emerges as Leading Contender to Succeed Jerome Powell as Fed Chair
Boston Dynamics Atlas humanoid robot and LG CLOiD home robot: the platform lock-in fight to control Physical AI
United States under President Donald Trump completes withdrawal from the World Health Organization: health sovereignty versus global outbreak early-warning access
FBI and U.S. prosecutors vs Ryan Wedding’s transnational cocaine-smuggling network: the fight over witness-killing and cross-border enforcement
Trump Administration’s Iran Military Buildup and Sanctions Campaign Puts Deterrence Credibility on the Line
Apple and OpenAI Chase Screenless AI Wearables as the Post-iPhone Interface Battle Heats Up
Tech Brief: AI Compute, Chips, and Platform Power Moves Driving Today’s Market Narrative
NATO’s Stress Test Under Trump: Alliance Credibility, Burden-Sharing, and the Fight Over Strategic Territory
OpenAI’s Money Problem: Explosive Growth, Even Faster Costs, and a Race to Stay Ahead
×