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Taxation: Historic global agreement to ensure fairer taxation of multinational enterprises
The European Commission recently (10 July 2021) welcomed the historic global agreement endorsed by G20 Finance Ministers and Central Bank Governors, which will bring fairness and stability to the international corporate tax framework. This unprecedented consensus will usher in a complete reform of the international corporate tax system. This will include a reallocation of taxing rights that will mean the world's largest companies will have to pay tax wherever they conduct business. At the same time, a global minimum effective tax rate of at least 15% will help curb aggressive tax planning and stop the corporate tax “race to the bottom.”
European Commissioner for Economy Paolo Gentiloni, who took part in the discussions in Venice, recently said:
“The G20 has today endorsed the unprecedented global agreement on corporate tax reform reached last week and now supported by 132 jurisdictions. A bold step has been taken, one that few would have thought possible just a few months ago. This is a victory for tax fairness, for social justice and for the multilateral system. But our work is not done. We have until October to finalise this agreement. I am optimistic that we will be able in that time also to reach a consensus among all European Union Member States on this crucial issue.”
The work under the auspices of the Organization for Economic Co-operation and Development (OECD) Inclusive Framework focuses on two main issues:
- Adapting the international rules on how the taxation of corporate profits is shared amongst countries, to reflect the changing nature of business models, including the ability of companies to do business without a physical presence. Under the new rules, a share of the excess profits of the largest, most profitable Multinational Enterprises (MNEs) would be redistributed to market jurisdictions, where consumers or users are located.
- Ensuring that multinational businesses are subject to a minimum effective level of tax on all of their profits each year. This will be set at a rate of at least 15%, and would apply to all multinational groups making more than EUR 750 million in combined financial revenues.
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