The Czech government agreed on a top-up tax mechanism to enforce a 15% minimum tax on large international corporations.
This proposal doesn’t exist in a vacuum. Tax evasion and very aggressive optimization are a problem for virtually all world economies. The effort to avoid taxes has always been around and is completely understandable, but globalization and massive multinational firms brought entirely new challenges and dimensions to the problem. Companies shift their profits and losses between branches so that they ultimately pay tax in the country with the lowest rate. This can be done in a whole range of ways — for instance, through very highly priced services and patent fees.
At its most primitive, it works something like this: in a country with a normal tax rate, a company actually earns a lot of money but ends up with very low profits or a loss, because the branch — say, in Czechia — purchases loads of services and patents from its own headquarters. The income from these transfers is then taxed at a significantly lower rate, in… Ireland, for example. This is only a very simplified model and the tactics of tax optimization and evasion keep evolving, but it serves as an illustration.
Initially, this was advantageous even for countries with aggressively low profit taxation, but it has its problems too — the race to see who can demand even lower taxes from companies can be played all the way to zero. One of the main problems is the distortion of market fairness. We end up in absurd situations: multinational companies use the shared infrastructure and other things built with state budget money just like everyone else. But they contribute significantly less.
Even worse is the impact on competition. Market competition is supposed to be about who delivers a better service or product at a lower price. Instead, we find ourselves in a situation largely determined by who is how willing and able to evade taxes. The worst affected are small businesses and employees: while large companies can afford to effectively dodge taxes, small businesses are easy to tax and states regularly make up their revenue from them. This is completely upside down. It prevents new companies without massive backing from entering the market and simultaneously lowers the standard of living and purchasing power where it’s needed most — at the bottom.
One of the bright spots of global state cooperation is the agreement on a minimum corporate tax of 15%. Countries can set it higher, but the European Union, the USA, and another 136 countries agreed that it won’t be less than 15% (exceptions include China and Russia, who didn’t join the agreement).
I consider this a success, in which, incidentally, the pressure and position of the European Parliament were crucial for the EU as a whole to even join the deal (Poland and Hungary, for example, had to be repeatedly bribed due to their veto). It will still be a very long road and will depend on how and when individual states manage to implement the principle. But if we want low taxes, one of the things we must gradually manage is to ensure that the biggest players pay at least something.