The Second Pillar: A Floor Under the Race
The global minimum tax is the rare international reform that changed a payoff rather than merely adding paperwork, and that is why it matters more than the decade of patching before it. Its cleverness is the top-up: it makes low-tax jurisdictions a little less valuable without forcing them to raise their own rates, by letting someone else collect the difference. Whether it holds depends on how many large economies actually enforce it — a coordination problem dressed as a tax rule. My read is that the floor is real but porous, and the interesting years are the ones now underway.
Knowledge check
The global minimum tax sets a floor of roughly 15% effective rate on large multinationals. If a group's profit in a particular country is taxed there at only 5%, what does the minimum-tax system permit another country to do, and why does this reduce the appeal of shifting profit to low-tax places?
Show the answer
Another country — typically where the group's parent or another entity resides — is permitted to charge a top-up tax that brings the effective rate on that profit up toward the 15% floor, collecting roughly the difference between the low rate paid and the floor. Because the shortfall gets collected somewhere regardless, the benefit of routing profit into a very low-tax jurisdiction shrinks: the group ends up paying close to the floor either way, so the incentive to engineer profit into the lowest-rate box is blunted.