The agreement reached over the weekend by the G7 on the minimum tax rate for companies and the provisions relating to levies on multinationals pave the way for a broader pact in the coming weeks that could reshape cross-border taxation in the coming years.
Hailed as a milestone by its supporters, the agreement contains, however, many details that still need to be fine-tuned in time for the G20 countries to support it at a meeting scheduled for next month.
This is what we know so far:
Will it apply worldwide?
The G7 agreement on a minimum corporate tax of at least 15% globally sets the stage for the next step, which is an online meeting from June 30 to July 1 of the 139 countries negotiating future tax rules. border at the Organization for Economic Cooperation and Development (OECD) in Paris.
The goal of the countries is to reach a consensus on the details at the meeting, as a lot of technical work has been done. Any agreement reached at that meeting will be presented to the G20 finance ministers for approval during a meeting in Venice on July 9-10.
The OECD and the United States have said that it may be necessary to wait until a G20 meeting in October to get final approval, because Washington’s position may not be final in July, as Congress will be processing a package of local tax measures.
The approval of the G20 would mean that the largest economies in the world would apply it, so that its scope would be effectively global
The end of tax havens?
If the deal does not end tax havens entirely, it will make them much less attractive to many companies looking to reduce their tax burden, but it will also make their track record more attractive to investors who focus on environmental, social and corporate governance.
The idea of the global minimum tax is to give countries the right to add additional taxes on company profits in countries with tax rates lower than the global minimum.
Additionally, the G7 wants the minimum rate to apply on a country-by-country basis, rather than an average of the countries in which a company operates, an approach that is seen as much harsher for tax havens.
Thus, if a US company makes profits in the British Virgin Islands, where there is no corporate tax, the US tax authorities could apply a 15% tax on those profits, if that is the overall minimum figure finally agreed.
How will it be applied?
Another part of the international tax talks is about how to distribute the rights of governments to tax the excessive, or non-routine, profits of the largest multinationals, including large digital companies such as Apple and Google.
The G7 agreed that governments should have the right to tax at least 20% of the profits obtained in their country by a multinational over a margin of 10%. Everything indicates that surplus earnings would also be subject to the global minimum.
That said, there are still many parameters to be specified and there is still room for these companies to make their point of view heard in the debate.
Are there earrings?
Countries negotiating the global tax are likely to exempt some sectors. For example, extractive industries are likely to be left out, as companies often pay upfront fees to the government where mines or oil fields are located.
There has also been talk of exceptions for certain financial services.
Authorities say some countries want room for maneuver in tax breaks for research and development. Others, like China, want to protect the low-tax economic zones they use to attract investment.
More revenue to governments?
The OECD calculated in October that a global minimum tax could raise $ 100 billion a year, or 4% of the world’s corporate tax. This figure is probably low, as it is based on a rate of 12.5%, which was the goal of the talks at the time.
However large the total figure may seem, it is a drop in the bucket compared to the trillions of dollars that governments around the world have spent to keep their economies afloat during the COVID-19 pandemic.
What about the Netherlands, Luxembourg and Switzerland?
These tax-advantaged countries have seen things clear in recent years and eliminated tax loopholes, while attempting to compete for foreign capital on non-tax terms.
Ireland, where many American tech companies have large operations, has said it will keep its 12.5% corporate tax rate regardless of what is decided internationally.
Finance Minister Paschal Donohoe estimates that annual corporate tax collection in Ireland will be 20% or € 2 billion less than it would have been in 2025 due to the expected changes, but does not expect a massive exit of companies. of its territory.
Switzerland, which is under pressure from abroad, has vowed to eliminate the low special tax rates that benefited some 24,000 foreign companies based in the country.
“Switzerland will take the necessary steps to remain a very attractive place of business,” the Finance Ministry said in a statement.
Thanks to its intricate network of tax treaties with other countries, the Netherlands could remain an avenue for multinationals to pass profits from one subsidiary to another at favorable rates.
Although the corporate tax rate in the Netherlands is 25%, the Dutch started this year taxing royalty payments and outgoing interest to places where the tax rate is below 9%, and they plan to do the same with dividends outgoing from 2024.
However, it is not clear when the G7 agreement will come into force and Dutch rules could still change before 2024.
