The Global Minimum Tax (GMT) initiative proposed by the Organisation for Economic Co-operation and Development (OECD) aims to create fairness in the tax system, particularly in ensuring that multinational companies pay a fair share of their tax obligations.
However, in recent years, aside from becoming an international economic and political commodity, the GMT policy has been viewed by some as overstepping the tax sovereignty of individual nations.
“Some consider GMT to be overly complex, while others view it as encroaching on a country’s tax sovereignty,” stated Professor Adrianto Dwi Nugroho in his inaugural address as a professor of corporate tax law at the Faculty of Law, Universitas Gadjah Mada (FH UGM), delivered on Thursday (Jun. 12) at the Senate Hall, UGM Central Office.
In his speech, which examined the global minimum tax through the lens of John Rawls’ theory of justice, Professor Nugroho emphasized the need to evaluate the essence of the GMT policy to ensure that justice in taxation can be achieved.
He explained that the Theory of Justice can serve as a framework for assessing the underlying principles of GMT. Applying this theory can help produce policy proposals that are more coherent and accessible to a broader audience, not just to their proponents. In this context, Professor Nugroho employed John Rawls’ theory, which presents a moral perspective emphasizing liberty.
“In Rawls’ theory of justice, tax serves as an instrument in the distribution function of government, following allocation, stabilization, and transfer functions,” he explained.
These three functions move taxation closer to fulfilling the principles of justice, which, according to the theory, are achieved when the conditions of the most marginalized groups align with their long-term expectations for equality, liberty, and equal opportunity.
Furthermore, Professor Nugroho argued that the fairness of a tax policy is not determined quantitatively but qualitatively. Specifically, the principle of justice is not concerned with the amount or method of welfare distribution but rather with the distribution of liberty and other primary goods. This perspective also provides an opportunity to analyze the Global Minimum Tax (GMT) within the core architecture of the Global Anti-Base Erosion (GloBE) rules.
The theory further asserts that legal entities are entitled to fair treatment, both horizontally and vertically, under Rawls’ principle of justice. Professor Nugroho elaborated on various GMT features in relation to Rawls’ theory and stated that the policy aligns with Rawlsian principles.
For example, the imposition of a Top-Up Tax on multinational corporations paying below the minimum corporate income tax rate of 15 percent ensures that companies operating in a country and surpassing a certain income threshold bear the same tax burden.
In addition, the additional state revenue generated from the Top-Up Tax enables countries to perform income redistribution functions, thereby fulfilling the basic needs of all residents within their territory.
In concluding his address, Professor Nugroho noted that theories of justice can serve as a touchstone for evaluating various international tax policies, particularly those targeting business profits earned by corporations.
He stated that the narrative of injustice, often attributed to lost tax revenues due to the inadequacy of existing tax laws in taxing multinational profits, has frequently been used by the OECD to justify the need for a restructured international tax order.
“To counter this narrative, the policies formulated by the OECD must be examined through the lens of justice theories so that coherent tax policies can be developed and voluntary tax compliance among multinational corporations can be enhanced,” he asserted.
He also noted that while the GMT policy represents an intervention in domestic tax regulation, its implementation reflects a collective effort to end harmful tax competition.
UGM Rector Professor Ova Emilia stated that Professor Nugroho is one of 532 active professors at UGM and one of 15 currently active professors, out of a total of 25, at FH UGM.
Author: Leony
Editor: Gusti Grehenson
Photographer: Firsto