Last month, world leaders formally agreed to refit the international tax rules to impose a new global minimum corporate tax on business profits of 15%. The idea behind the deal is to make the international tax arrangements fairer and have it work better, as Mathias Cormann, Organization for Economic Cooperation and Development (‘OECD’) Secretary-General, said.
What is the Global Minimum Tax
The main innovation of the international tax reform is to establish a 15% minimum corporate rate beginning in 2023. The new minimum rate will apply to big multinationals with at least $867 million (€750 million) in revenue.
If company earnings go untaxed or lightly taxed in one of the world’s tax havens, jurisdictions with very low taxation rates for foreign investors or companies, their home country would impose a top-up tax that would bring the rate to 15%.
By setting a common tax floor for countries, the deal targets to discourage national companies from going abroad, eliminating the advantage of transferring profits and tax base erosion. That would make it pointless for a company to use tax havens since taxes avoided in the other jurisdiction would be collected at home. However, several deductions and exceptions included in the deal are, at the same time, designed to limit the impact on low-tax countries.
How Will the Global Minimum Tax Work?
Any global minimum corporate tax would not be self-enforceable, including the OECD plan. Each country would have to incorporate the rate and rules into its own tax system. In the United States, the global minimum corporate tax would have to be passed by Congress and made law by the president.
President Biden stated that “[E]stablishing, for the first time in history, a strong global minimum tax will finally even the playing field for American workers and taxpayers, along with the rest of the world.” However, Republicans, who oppose Biden’s domestic tax reform, immediately opposed the global deal and threatened to block it in Congress, suggesting an imminent fight as the United States tries to ratify the agreement
How Will This Affect Taxpayers?
Supporters of the global corporate minimum tax deal believe it will help stop the “race to the bottom” as countries compete to cut taxes to attract businesses. They believe this will increase tax revenues and allow governments to collect more tax revenue, a vital resource to reduce an inequality divide that worsened during the crisis. In a post COVID era, it would be highly beneficial to countries that have multinationals transferring their profits and tax revenues from their home countries.
How the International Tax Attorneys at Evolution Tax and Legal Can Help
To date, 136 countries and jurisdictions have agreed to the OECD plan, but detailed tax accounting rules still need to be developed. The Evolution Tax and Legal Team is keeping a close eye on the negotiating of the agreement and how it will affect US companies that are subject to different tax jurisdictions.
Our international tax planning attorneys are uniquely qualified to help you with your international tax plans and payments. Being dually certified in accounting and law allows us to understand the numbers and the policy and intricacies behind current international tax law. If you need help navigating the world of international tax, contact the team at Evolution Tax and Legal today.