The global tax agreement faces challenges in detail, implementation and persistence
After years of complex negotiations, 130 countries have agreed to fundamentally change the taxation of companies around the world-but there are still some details to be decided, domestic legislation has not yet been completed, and insisting countries have not been persuaded.
This Deal reached After the G7 major economic group reached an agreement last month, at the OECD meeting in Paris on Thursday.
It will introduce a global minimum corporate tax rate of at least 15%, and give countries new rights to levy taxes based on the source of income of large companies rather than their location.
According to OECD estimates, the minimum tax rate may add more than US$150 billion in additional taxes each year, while changes in jurisdiction will generate between US$15 billion and US$17 billion each year.
Only the largest companies in the world-companies with annual revenues of more than 20 billion euros and a pre-tax profit margin of at least 10%-will be affected by the change in jurisdiction. These companies will pay taxes on 20% to 30% of the profits they make, with profits exceeding the top 10% as revenue share.
A mandatory dispute settlement mechanism will be introduced to prevent countries from quarreling with each other, which is an initiative promoted by enterprises.
The agreement confirms that companies with annual revenues of 750 million euros or more will apply a minimum tax rate of at least 15%. If they wish, countries can choose to apply it to companies of all sizes.
Just two weeks ago, many countries refused to sign, triggering a fierce confrontation among top Americans. Reinvigorating stalled global negotiations Earlier this year, a new proposal was put forward.
Countries that are reluctant to sign include China, Argentina, Saudi Arabia, Russia and Turkey.
Only eight countries persisted: Barbados, Estonia, Hungary, Ireland, Kenya, Nigeria, Sri Lanka and Saint Vincent and the Grenadines; a few are tax havens and they will suffer heavy losses.
Peru abstained because it has no government.
The rejection of the three EU member states embarrassed Brussels and could cause practical problems. The European Commission plans to introduce international agreements into EU law, but the tax directive requires unanimous consent; it is unclear whether the rejection will veto a directive.
Irish Finance Minister Pashar Donohue said on Friday that he hopes to “continue to participate in” and “cooperation” negotiations, but this is “a nationally sensitive issue” and “there is not enough clarity or enough information.” . Register”.
Aisling Donohue, a tax partner in Andersen, Ireland, said the decision was “unprecedented in history”.
“Usually, when a global consensus is reached, we tend to agree,” she said.
Winners and losers
The change in jurisdiction will have the greatest impact on countries that have the headquarters of many multinational companies.
Research conducted by Michael Devereux and Martin Simmler of Oxford University’s Said Business School estimated that approximately 64% of the tax revenue growth in jurisdictions will come from US companies, of which 45% will come from Technology company.
Companies excluded from the jurisdiction include financial services and extractive industries.London wins the championship Financial services exemption Devereux and Simmler estimate that it will reduce the affected total profit by about half.
However, countries with the headquarters of many multinational companies will be the biggest beneficiaries of the lowest taxes in the world, especially the United States.
Companies that are exempt from the minimum tax include shipping groups and companies that receive incentives to invest in tangible assets such as factories and machinery.
Tax havens will suffer the most because the transaction allows countries to impose additional taxes on companies that do not pay the lowest tax rates in each jurisdiction in which they operate—eliminating the advantage of transferring income through low-tax jurisdictions.
Some developing countries complained that the transaction did not bring them enough taxes.
Logan Water, executive secretary of the African Tax Management Forum, which advises governments on the African continent, said that “maybe at least 15 countries” have signed the reservation, but he said that this was not reflected in the OECD statement.
However, he added that the deal “may not be perfect,” but “it will certainly greatly boost [the ratio of] Taxes account for GDP, total revenue and… to collect things that we could not collect before”.
The global agreement will replace the national digital taxes that some countries have introduced, but it is not clear when they will abandon these.
The agreement promises “appropriate coordination,” but tax experts warn that this is not simple because each country needs to legislate at its own pace.
For example, in the United States, President Joe Biden must seek congressional approval for at least certain parts of the agreement-while Republicans May object.
Some countries are unwilling to withdraw taxes before the US legislative process is successful.
The scope of other tax incentives covered by the agreement is unclear.
Ross Robertson, BDO’s international tax partner, said that systems such as patent boxes, which provide lower effective corporate tax rates for R&D activities, may be affected.
Dan Neidel, a partner at Clifford Chance, said that if such incentives are still under state control, multinational companies will still choose to locate their bases in jurisdictions with the most generous systems. “The more leeway you have, the greater the chance of arbitrage,” he said.
The agreement will be discussed at the G20 Finance Ministers’ Meeting in Venice next week, and then at the G20 Leaders’ Meeting in Rome in October.
The OECD will continue technical negotiations to discuss the remaining details.
Every country must pass domestic legislation next year to make a final agreement, and these changes will take effect in 2023.
Manal Corwin, KPMG’s national tax director in Washington and a former U.S. international tax consultant, said that agreeing to the details would “require a lot of work” and warned that “the implementation timeline is very ambitious.”
“It will be a daunting task to compile this result in multiple legislative and parliamentary procedures before 2022 for the effective date of 2023,” she said.
Additional reporting by Laura Noonan