Over the past three years, the OECD / G20 Inclusive Framework on BEPS has embarked on an unprecedented attempt to make corporate tax policy on a global basis. What started as a project on the tax challenges of digitization, intended to update international tax rules to ensure that income tax would be paid by multinationals selling digitized services and products, has transformed. in broader proposals for the attribution by form of the profits to the countries of the market, and for a world minimum tax regime. By 2020, the number of jurisdictions involved in negotiations on the two so-called “pillars” had reached 139.
Few people, other than those familiar with international tax policy, knew much until recent media attention was paid to the announcement made by the Group of Seven finance ministers: Germany, the Canada, France, Italy, Japan, UK and UK. United States — that they had agreed on an overall minimum tax of at least 15% on multinational corporations, and on certain parameters for the reallocation of taxing rights. Much of the reporting seemed to assume that the tax measures would become a reality in the near future.
In fact, however, G7 finance ministers do not have the power to set such global rules themselves, and their communiqué implicitly acknowledged this. But the communiqué suggested that the power rested with the Group of 20 and was worded in a way that curiously excluded any mention of the Inclusive Framework, while appearing to definitively state what was to come:
“We are committed to finding a fair solution on the allocation of taxing rights, with market countries being assigned taxing rights on at least 20% of profits exceeding a 10% margin for the most multinational companies. large and most profitable. We will ensure proper coordination between the application of the new international tax rules and the removal of all taxes on digital services, and other relevant similar measures, on all businesses. We are also committed to applying an overall minimum tax of at least 15% country by country. We agree on the importance of moving the deal forward on both pillars in parallel and look forward to reaching an agreement at the July meeting of G20 finance ministers and central bank governors. “
A little history is needed here, to explain why the omission of any mention of the Inclusive Framework is significant. In February 2013, the OECD Center for Tax Policy and Administration released a paper on tax avoidance by multinational corporations, which it called “Base Erosion and Profit Shifting” or BEPS . In July 2013, G20 leaders approved a proposal that the OECD undertake a project to make recommendations on 15 issues related to BEPS, the BEPS Action Plan. The OECD duly invited G20 members who are not members of the OECD to participate in the work, thereby creating a body of 44 countries engaged in the joint development of international tax policy.
After completing its 15 reports at the end of 2015, the OECD invited all countries that had not been involved until then to join a new body called the Inclusive Framework on BEPS, where they could engage in the development of global tax policies “on an equal footing. with the 44 countries of origin, provided they are willing to commit to implementing the four agreed minimum standards that emerged from the 15 reports. The Inclusive Framework held its first meeting in mid-2016 and has met regularly since then.
The Inclusive Framework has provided regular reports to the G20 on the progress of its work, which has increasingly focused on the two pillars mentioned above. Political pressure began in 2018 to find a global deal that would replace the proliferation of unilateral fiscal measures such as taxes on digital services, and the pressure has steadily increased due to US threats – backed by measures – impose tariffs on products from various countries in response to their DST. . At the same time, some governments, such as those of Germany and France, felt that more was needed to prevent perceived tax evasion by multinationals. The Trump administration, however, was not convinced that the proposed tax changes would be in the best interests of the United States.
Enter Joe Biden, or rather the new US Secretary of the Treasury, Janet Yellen, who quickly made it clear that the attitude of the United States would be different in the future. In early April, the United States proposed to the Inclusive Framework a somewhat simplified version of the plans for the two pillars. At the same time, the Biden administration unveiled a plan to increase corporate taxes in the United States, especially on multinationals. The global minimum tax proposal before the Inclusive Framework was cited as a key to minimizing the competitive disadvantage that US multinationals would otherwise face if the US tax hike were enacted, given that the global minimum rate and the minimum rate American on income earned abroad would be 21% under the two plans.
Meanwhile, the Forum of African Tax Administrators released a policy paper in mid-May, suggesting on behalf of a number of African countries significant changes to the two pillars, diametrically opposed to those proposed by the States- United In Europe, relatively low tax countries such as Ireland and Hungary have spoken out against the idea of an overall minimum rate of 21%. Secretary Yellen responded by saying that the United States could live with an overall minimum rate of 15%, although it would prefer a higher rate.
Then the G7 finance ministers met in early June and agreed on the points mentioned in their press release above. In light of the history of the two-pillar project, it is surprising that the communiqué made no mention of the need for consensus among the members of the Inclusive Framework. The G7 announcement was amplified by an unprecedented media blitz in the world of international tax policy.
The response of non-G7 countries to the G7 announcement has been limited. Ireland has again indicated that it is not ready to subscribe to an overall minimum rate higher than its rate of 12.5%, alluding to the need to find an agreement between a larger group of countries, including including small countries. Among the major non-G7 economies, Indonesia, Mexico and South Africa expressed support, while China only made a brief neutral statement on the need to discuss issues within the G7. G20 and that India has remained silent.
The next steps are, on the one hand, a plenary meeting of the Inclusive Framework at the end of June and, on the other hand, a meeting of G20 finance ministers in early July. A number of important gaps in the two pillar plans need to be addressed before countries can understand what they are being asked to agree to. These shortcomings include the method of calculating the effective tax rate of a multinational in each country where it operates, the definition of the companies that will be subject to the proposal for attribution of profits to market countries, and the rules concerning the repeal of unilateral measures such as digital taxes on services.
So, is the G7 announcement important? Yes, insofar as it adds political momentum to the American plan. However, the crucial political negotiations between Inclusive Framework countries, including non-G20 members of the G20, matter much more.
This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.
Jeff VanderWolk is a partner at Squire Patton Boggs (US) LLP. The opinions expressed are those of the author and do not necessarily reflect the opinions of the firm, its clients or any of its respective affiliates. This article is for general information purposes and is not intended to be and should not be construed as legal advice.
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