Is a new global minimum tax rate coming?

The Organisation for Economic Co-operation and Development (OECD) investigates the possibility for establishing a new global minimum tax rate applying to most of the world jurisdictions. Such a tax rate aims to make sure that taxpayers will not be able to benefit from their relocation to tax havens. For example, if the global minimum tax rate is 10% and a tax haven applies a tax rate of 3%, other countries will be able to tax persons who send payments to the tax haven with a tax at the rate of 7%. The purpose of the global minimum tax rate is to prevent multinationals from avoiding taxation by using tax optimisation techniques.

A global minimum tax rate will have a negative impact on the tax competition between countries. At present, in the field of taxation, there is a race to the bottom that benefits businesses and individuals because it increases their investment and purchasing power. A global minimum tax rate will stop that race because countries who adopt the minimum tax rate will be prevented from launching even more competitive tax regimes.

It is not clear exactly what the global minimum tax rate will be as the OECD would like to reach an agreement on the proposal in general before starting a discussion on the specific rate. Likely, it will be about 10% as the rate of 10% is generally not considered a rate of a tax haven, but a rate of a mid-shore jurisdiction. A mid-shore jurisdiction is a jurisdiction having low tax rates and an attractive business environment. Mid-shore jurisdictions are not a universal taxation panacea as they still levy taxes. However, they are generally reputable jurisdictions and their use is not associated with the negative connotation which tax havens have.

Bulgaria is one of the most attractive mid-shore jurisdictions in the European Union (EU). The rate of both the corporate and personal income taxes in Bulgaria is just 10%. Furthermore, Bulgaria offers affordable labour force. In 2019, the national minimum salary in Bulgaria is just EUR 286,3 per month, which means EUR 3,436 per year. In comparison, the minimum monthly salary in Luxembourg is EUR 2,071 in 2019, i.e., EUR 24,853 per year.

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