The OECD Steals the Show
Kitty Miv, Editor
19 October, 2021
Well, in a normal week, the ongoing fallout from the release of the 'Pandora Papers' would be enough to be going on with, news-wise...
However, the headlines were unceremoniously snatched by the announcement from the OECD that agreement had been reached on its far-reaching corporate tax reform plans, following productive discussions with some of the hold-out countries which remained against the proposals; at the time of writing, Kenya, Nigeria, Pakistan and Sri Lanka remain opposed, whilst Ireland, Estonia and Hungary have agreed to sign up to the plans, subject to certain conditions.
As a result, sufficient international agreement has now been reached to go ahead with a new global minimum corporate tax rate of 15 percent, which will be introduced for large multinational enterprises (MNEs) from 2023, and represents Pillar Two of the Agreement.
Supported by 136 countries and jurisdictions representing more than 90 percent of global GDP, the agreement will also bring in new tax rules to reallocate to market jurisdictions taxing rights on profits earned by the world's 100 largest and most profitable MNEs, representing Pillar One of the planned pact.
The agreement was sealed at the October 8, 2021, meeting of the 140-member BEPS Inclusive Framework.
The OECD explained that: "The global minimum tax agreement does not seek to eliminate tax competition, but puts multilaterally agreed limitations on it, and will see countries collect around USD150bn in new revenues annually."
Countries are aiming to sign a multilateral convention during 2022, for implementation in 2023. According to the OECD, the convention is already under development and will be the vehicle for implementation of the newly agreed taxing right under Pillar One, as well as for the standstill and removal provisions in relation to all existing digital services taxes and other similar relevant unilateral measures.
The OECD will develop model rules for the Pillar Two plans during 2022, for implementation also from 2023.
Key among the nations which remained – until recently – unconvinced of the merits of the proposed global minimum corporate tax rate and income allocation changes, was Ireland, which has traditionally been fiercely protective of its 12.5 percent corporate tax rate.
However, the Irish Government has agreed to withdraw its opposition to the plans in return for an agreement that the minimum tax rate that would apply to the world's largest companies should be 15 percent, and not "at least 15 percent" in the final text, amid concerns that acquiescing now might lead to further pressure for an increase to that rate later.
Estonia also reversed its previously held position, and agreed to support the two-pillar tax plans. On October 7, the Estonian Government announced that it would support the OECD's two-pillar tax plans, arguing that the impact on the Estonia tax regime for corporations would be minimal.
Prime Minister Kaja Kallas explained that: "The Estonian corporate income tax system has been one of the cornerstones of the international competitiveness of the Estonian business environment, which must be firmly protected. As Estonia has been opposed to the introduction of a global minimum tax, we have been in intense negotiations throughout the summer to achieve a situation where this global tax would affect Estonian entrepreneurs as little as possible. As a result of the successful negotiations, the minimum tax will change nothing for most Estonian entrepreneurs and only applies to subsidiaries of large international groups."
And finally, Hungary also affected a climbdown, stating that with the latest version of the OECD proposals, a "compromise" had been reached that was acceptable for the Hungarian economy, and for businesses operating in the country.
Until next week!
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