The global tax agreement addresses challenges of detail, implementation and delays

After years of complex negotiations, 130 countries have agreed to fundamentally change the way businesses are taxed around the world – but some details remain to be decided and comprehensive national legislation, and nations that still are not. you have been conquered.

U the deal has been concluded at the OECD in Paris on Thursday after the leading economy G7 group reached an agreement last month.

It will introduce a minimum corporate tax rate of at least 15 percent and give countries new rights to tax large companies based on where they earn their revenues, rather than where they are located.

The minimum rate will raise more than $ 150 billion in additional taxes a year, and another $ 15 billion to $ 17 billion a year will be generated by the change of jurisdiction, according to OECD estimates.

Only the world’s largest companies – those with annual turnovers in excess of € 20 billion and pre-tax profit margins of at least 10 per cent – will be affected by the change in jurisdiction. These companies pay tax on the top 20 percent to 30 percent of the profits they make, in addition to the top 10 percent of profits as a share of revenues.

A mandatory dispute resolution regime will be introduced to prevent nations from litigating among themselves, a movement company had pushed.

The agreement confirmed that a minimum tax of at least 15 percent will apply to companies with annual revenues of 750 million euros or more. Countries can choose to apply it to companies of all sizes if they wish.

I holdouts

Just two weeks ago, several countries refused to stop themselves, causing an intense period of high-level torsion of arms by the US, which it revived tired global discourses earlier this year by establishing fresh proposals.

Reluctant signatories include China, Argentina, Saudi Arabia, Russia and Turkey.

Only eight countries were held: Barbados, Estonia, Hungary, Ireland, Kenya, Nigeria, Sri Lanka and Saint Vincent and the Grenadines; many are tax havens that will be substantially lost.

Peru abstained as a government.

The refusal of three EU member states is embarrassing for Brussels and could pose a practical problem. The European Commission plans to introduce international agreement into EU law but the tax directives require unanimity; it is unclear whether the refuseniks vetoed a directive.

Irish Finance Minister Paschal Donohoe said on Friday he wanted to “continue to engage” and “cooperate” with the negotiations but it was “a matter of huge national sensitivity” and “there was not enough clarity or enough information … to register ».

Aisling Donohue, tax partner at Andersen in Ireland, said the decision was “unprecedented”.

“Usually when there is a global consensus, we tend to go online,” he said.

Winners and losers

The change of jurisdiction will most influence the countries hosting the headquarters of several multinationals.

Research by Michael Devereux and Martin Simmler of Oxford’s Saïd Business School estimates that about 64 percent of the jurisdictional increase in tax revenues comes from U.S.-based companies, with 45 percent from technology companies.

Companies excluded from the jurisdictional change include financial services and those involved in the extractive industries. London’s success in the victory of the exemption from financial services reducing the total profit affected by about half, Devereux and Simmler estimate.

However, the countries hosting the headquarters of many multinationals will be the largest beneficiaries of the global minimum tax, particularly the United States.

Companies excluded from the minimum tax include shipping groups and those that receive incentives to invest in tangible assets such as factories and machinery.

Tax havens will lose most because the agreement allows countries to levy a surcharge on companies that have not paid the minimum tax in each jurisdiction they operate – eliminating the benefits gained from channeling them. returned through low-rate jurisdictions.

Some developing countries have complained that the agreement does not bring enough taxes.

Logan Wort, executive secretary of the African Tax Administration Forum, which advises governments across the continent, said that “probably at least 15 countries” that have signed up have done so with reservations, which he said they do not. was not reflected in the OECD announcement.

However, he added, the agreement “may not be perfect” but “will certainly make a hell of a push to [the ratio of] tax on GDP, total revenues, and. . . to collect what we have never been able to collect before ”.

Unresolved questions

The global agreement will replace the national digital taxes that some countries have already introduced, but it is unclear when they will waive them.

The agreement promised “proper coordination” but tax experts warned that it would not be right because each country needs to legislate at its own pace.

In the United States, for example, President Joe Biden must seek Congressional approval for at least some parts of the agreement – and Republicans they are likely to oppose it.

Some countries are reluctant to withdraw their taxes until the U.S. legislative process is successful.

The extent to which other tax incentives are covered by the agreement is unclear.

Ross Robertson, international tax associate at BDO, said schemes such as patent schemes – which offer lower effective tax rates for research and development activities – could be affected.

Dan Neidle, a fellow at law firm Clifford Chance, said that if such incentives remain under national control, multinationals will still choose to base themselves in jurisdictions with more generous regimes. “The more margin of freedom you have, the more opportunities for arbitration,” he said.

Next steps

The agreement will be discussed at the meeting of G20 finance ministers next week in Venice, and after the meeting of G20 leaders in Rome in October.

Technical negotiations will continue with the OECD to scan the remaining details.

Each country must enact the final agreement through domestic legislation next year and the changes will take effect in 2023.

Manal Corwin, head of Washington’s national tax office at KPMG and former U.S. international tax advisor, said he agreed that the details “require a fair amount of work,” and warned that “the timeline for the implementation is quite ambitious. ”

“The choreography of this result from 2022 to an effective date of 2023 in many legislative and parliamentary processes will be a fact,” he said.

Additional reports from Laura Noonan

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