The plenary of the OECD/G20 Inclusive Forum on BEPS sealed the final text of the international corporate tax reform. MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:
“A global minimum tax is an important step forward against tax dumping. A decades-long blockade in international tax policy has been overcome today. The agreement ushers in a new era of global tax cooperation. This means that a limit has finally been set on the ruinous tax race to the bottom. However, there is regret mixed in with the joy about this agreement. It is a success with a drop of bitterness. The corporate tax reform lacks the ambition to really reduce global inequalities. The capping of the effective minimum tax at 15 percent weakens a key aspect of the international corporate tax reform. Tax avoidance by corporations and tax evasion by the wealthy remain major problems. The relatively low redistribution of excess profits to countries where, for example, digital corporations exercise market power, is also a disappointment. Developing countries in particular get too little of the global tax pie. The fight for global tax justice is far from won.
We are now getting rules for the largest corporations worldwide, but this does not mean that corporate tax avoidance is a thing of the past. We need an effective minimum tax rate for all companies, not just the biggest corporations. Letterbox companies must also pay their fair share in taxes.
The problem of the monopolisation of the digital economy will not be solved with this agreement. Regulation of the digital economy is central to limiting the monopolisation of the economy. Although the market shares of Google, Amazon, Facebook and Co. are considerable, their tax contributions will remain small even with the minimum tax. We must not apply double standards in taxation between the analogue and the digital economy. Antitrust law, labour market policy and social systems must also contribute to fair competition between analogue and digital business models. The Pandora Papers clearly show that we have a divided rule of law in the tax area, which applies to some and not to others. We need to build a fairer tax system to build trust in our democratic institutions.”
Based on preliminary information on the outcome of the negotiations.
The most talked about part of the agreement is the global minimum tax. Strictly speaking, however, this is not a minimum tax, but rather a top-up tax for foreign subsidiaries of large corporations. Under the so-called income inclusion rule, the income of foreign subsidiaries is taxed at the parent company if there is a difference between the effective tax rate abroad and the internationally set effective minimum tax rate of 15 percent. The difference is then covered by the top-up. Since this is a top-up tax, EU member states can implement it even without European agreement, as long as they include domestic and foreign subsidiaries equally.
The international corporate tax reform consists of two pillars: Pillar I regulates the redistribution of taxing rights for part of the excess profits of multinational companies. It concerns multinational companies with a global turnover above 20 billion euros. 25% of their revenue in excess of a 10% profitability margin will be allocated to market jurisdictions. Pillar II sets the minimum taxation, in particular the effective tax rate as well as the tax base. The minimum effective tax rate is to apply to large companies with a consolidated group turnover of more than € 750 million.
On 1 July, 130 member states had agreed to a provisional agreement. EU member states Ireland, Hungary and Estonia are three of the nine countries that had refused to agree in July. They demanded concessions in order to be able to agree to the final agreement. In this way, Ireland was able to achieve a considerable weakening of the original text: instead of an effective minimum tax rate of “at least 15 percent”, Ireland was able to get the words “at least” deleted. US President Biden had originally proposed an effective minimum tax rate of 21%; the wording “at least 15 percent” was already a concession to countries with low taxes. Cyprus is not a member of the OECD Inclusive Framework.
The OECD/G20 Inclusive Framework agreement is due to be endorsed by G20 finance ministers and central banker governors on 13 October and adopted on 30-31 October.