Creating a Global Minimum Tax Rate: What to Remember?

June 15, 2021 | by: David Kodjani

The finance ministers of the rich countries of the Group of Seven (G7) reached a landmark agreement on Saturday June 5, 2021 supporting the creation of a global minimum corporate tax rate of at least 15%, an agreement which could then form the basis of a global agreement.

The background

The Organization for Economic Co-operation and Development (OECD) has been coordinating tax negotiations between 140 countries for years on the rules relating to the taxation of cross-border digital services and the reduction of the erosion of the tax base, including a global minimum corporate tax. OECD and G20 countries want to reach consensus on both points by the middle of the year, but discussions over a global minimum for business are technically simpler and less controversial. If a broad consensus is reached, it will be extremely difficult for a low-tax country to try to block a deal.

The Operation

The Minimum is expected to make up the bulk of the $ 50-80 billion in additional taxes that the OECD estimates companies will eventually pay globally under deals on both fronts.

The global minimum tax rate would apply to overseas profits. Governments could always set whatever local corporate tax rate they want, but if companies pay lower rates in a particular country, their home governments could 'top up' their taxes to the minimum rate, thus eliminating the tax rate. benefit of transferring profits.

The OECD said last month that governments broadly agreed on the basic design of the minimum tax, but not on the rate. Tax experts say this is the thorniest issue, although the G7 deal creates strong momentum around the over 15% level.

Other points still need to be negotiated, including whether investment funds and real estate investment trusts should be covered, when to apply the new rate and ensure that it is consistent with U.S. tax reforms.

The next step

A G20 meeting scheduled for Venice next July will see if the G7 agreement enjoys broad support from the world's largest developing and developing countries.

Much remains to be done, including measures that will determine how and to which multinationals the tax will be applied.

Source: EuroNews

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