This week, Treasury Secretary Steven Mnuchin endorsed the idea of a global minimum tax following meetings with French Finance Minister Bruno Le Maire in Paris. Secretary Mnuchin was quoted as saying, “We think it’s very important, the concept of minimum taxes, and that there isn’t a chase to the bottom on taxation.” These comments are in the context of an ongoing global discussion about changing international tax rules with an eye towards the digitalization of the economy. In February, the Organisation for Economic Co-operation and Development (OECD) released a Public Consultation Document that outlined several policy options for allocating tax revenues and establishing a minimum tax on certain profits of multinationals. The OECD document specifically refers to the new U.S. policy of Global Intangible Low Tax Income (GILTI). Secretary Mnuchin also referred to this policy in his remarks in Paris. GILTI acts as a minimum tax on earnings that exceed a 10 percent return on a company’s invested foreign assets. GILTI is subject to a worldwide minimum tax of between 10.5 and 13.125 percent on an annual basis. Some U.S. multinationals may, however, face rates on GILTI higher than 13.125 percent. At the OECD, the interest is in taking the U.S. model for minimum taxation and making it go worldwide. So, where a French company might pay a very low rate of tax on their foreign operations in Ireland, a GILTI regime could increase the tax rate on those foreign profits. The OECD document is silent on what rate would be used for the global minimum tax, but it is likely that it would ultimately increase tax rates on profits earned in low-tax jurisdictions. From a broad standpoint, the minimum tax would set a floor for tax competition and could undermine the sovereignty of some taxing jurisdictions. Ireland has a corporate tax rate of 12.5 percent and Hungary has a rate of just 9 percent. If the minimum tax has a rate higher than those countries, then some of their competitive advantage on tax policy would be wiped out. A global minimum tax also comes with several potential pitfalls. As I recently pointed out, there are three key issues that policymakers need to pay attention to when designing a minimum tax: Use this opportunity to eliminate harmful, unilateral digital taxes Exempt Foreign Direct Investment (FDI) from the tax base Make the system simple for compliance A minimum tax could mean the end of tax competition on corporate tax rates. However, countries should continue to work to improve their corporate tax base and other areas of their tax systems. OECD research has found that the corporate income tax is the most harmful for economic growth. A global minimum tax would directly impact the cost of capital, decisions on whether to invest or expand in a particular jurisdiction, and long-run economic growth. Tax competition has lowered the cost of capital and barriers to trade and investment across the globe. Placing a floor on tax competition or increasing tax rates on profits from multinational businesses could have serious economic effects. Secretary Mnuchin, Finance Minister Le Maire, and other tax policy leaders should encourage the OECD and their own research staff to perform serious economic analysis on the alternatives for changing international tax rules before moving forward. It would be quite unfortunate for the world to learn the wrong lessons from U.S. tax reform. Stay Updated on Tax Issues Around the World Select Country United States Aaland Islands Afghanistan Albania Algeria American Samoa Andorra Angola Anguilla Antarctica Antigua And Barbuda Argentina Armenia Aruba Australia Austria Azerbaijan Bahamas Bahrain Bangladesh Barbados Belarus Belgium Belize Benin Bermuda Bhutan Bolivia Bonaire, Saint Eustatius and Saba Bosnia and Herzegovina Botswana Bouvet Island Brazil British Indian Ocean Territory Brunei Darussalam Bulgaria Burkina Faso Burundi Cambodia Cameroon Canada Cape Verde Cayman Islands Central African Republic Chad Chile China Christmas Island Cocos (Keeling) Islands Colombia Comoros Congo Cook Islands Costa Rica Cote D'Ivoire Croatia Cuba Curacao Cyprus Czech Republic Democratic Republic of the Congo Denmark Djibouti Dominica Dominican Republic Ecuador Egypt El Salvador Equatorial Guinea Eritrea Estonia Ethiopia Falkland Islands Faroe Islands Fiji Finland France French Guiana French Polynesia French Southern Territories Gabon Gambia Georgia Germany Ghana Gibraltar Greece Greenland Grenada Guadeloupe Guam Guatemala Guernsey Guinea Guinea-Bissau Guyana Haiti Heard and Mc Donald Islands Honduras Hong Kong Hungary Iceland India Indonesia Iran Iraq Ireland Isle of Man Israel Italy Jamaica Japan Jersey (Channel Islands) Jordan Kazakhstan Kenya Kiribati Kuwait Kyrgyzstan Lao People's Democratic Republic Latvia Lebanon Lesotho Liberia Libya Liechtenstein Lithuania Luxembourg Macau Macedonia Madagascar Malawi Malaysia Maldives Mali Malta Marshall Islands Martinique Mauritania Mauritius Mayotte Mexico Federated States of Micronesia Republic of Moldova Monaco Mongolia Montenegro Montserrat Morocco Mozambique Myanmar Namibia Nauru Nepal Netherlands Netherlands Antilles New Caledonia New Zealand Nicaragua Niger Nigeria Niue Norfolk Island North Korea Northern Mariana Islands Norway Oman Pakistan Palau Palestine Panama Papua New Guinea Paraguay Peru Philippines Pitcairn Poland Portugal Puerto Rico Qatar Republic of Kosovo Reunion Romania Russia Rwanda Saint Kitts and Nevis Saint Lucia Saint Martin Saint Vincent and the Grenadines Samoa (Independent) San Marino Sao Tome and Principe Saudi Arabia Senegal Serbia Seychelles Sierra Leone Singapore Sint Maarten Slovak Republic Slovenia Solomon Islands Somalia South Africa South Georgia and the South Sandwich Islands South Korea South Sudan Spain Sri Lanka St. Helena St. Pierre and Miquelon Sudan Suriname Svalbard and Jan Mayen Islands Swaziland Sweden Switzerland Syria Taiwan Tajikistan Tanzania Thailand Timor-Leste Togo Tokelau Tonga Trinidad and Tobago Tunisia Turkey Turkmenistan Turks & Caicos Islands Turks and Caicos Islands Tuvalu Uganda Ukraine United Arab Emirates United Kingdom Uruguay USA Minor Outlying Islands Uzbekistan Vanuatu Vatican City State (Holy See) Venezuela Vietnam Virgin Islands (British) Virgin Islands (U.S.) Wallis and Futuna Islands Western Sahara Yemen Zambia Zimbabwe Email + Advertising By subscribing, you agree to be contacted by the Tax Foundation. We respect the privacy of all our subscribers and you can learn more about our privacy policy here.