More than 130 countries have agreed to set a minimum tax rate of 15% for multinational corporations. Its purpose is to control tax evasion, especially for digital companies.
Emmanuel Macron praised the “historic deal”. After fierce negotiations under the OECD, more than 130 countries and territories agreed to impose a minimum tax of 15% on multinational corporations. But what will this international tax agreement change?
- What are the signatory countries?
The treaty unites 136 countries and autonomous regions, including France, the United Kingdom, the United States, China, India, Japan and Russia, which represent 90% of world GDP. It was the late march of Ireland, Hungary and Estonia that, until then, was reluctant to put their initials on the speech, which opened the negotiations. There are also areas that are often considered tax havens, such as Jersey, Bermuda or the Cayman Islands.
Of the 140 countries and territories associated with the talks, only four are missing: Kenya, Nigeria, Sri Lanka and Pakistan. In addition, some sixty countries were not involved in the negotiations. Published by OECD Map of the countries involved.
- What is the minimum tax?
All countries concerned have set a minimum tax rate of 15% for companies with a turnover of at least 50 750 million. In addition, a state is taxed abroad at a rate of less than 15% of the foreign profits of one of its national entities. The aim is to streamline national taxes to curb tax reform driven by multinational corporations.
These 136 countries and territories could generate about 150 billion euros in additional revenue from 2023.
- On what basis is this tax calculated?
The reform targets multinational corporations that choose a regional entity for purely financial reasons – like the American digital giants in Ireland. Compensation rules will be enforced so that companies that carry out “real” activities are not penalized – and thanks to a corporate tax that has only 9% of its tax attractiveness to get the contract of countries like Hungary.
In detail, companies can deduct the tax base portion of the payroll and actual assets such as stocks or equipment. For ten years, companies can deduct an amount equal to 8% of the value of real assets and 10% of wages: beyond that, in both cases the rate will drop to 5%.
- How will the profits be distributed among the states?
The new distribution of “taxable rights” is another pillar of this international tax reform. It provides that if the profit margin exceeds 25% to 10%, the company will be redistributed to the countries in which it operates – one speaks of “surplus profit”. The goal is for the largest multinational corporations to redistribute a portion of the profits they make on their soil to the states, but sometimes tax optimization evaporates through the game.
The company must achieve revenue of at least one million euros in a state, or 250,000 euros if the state’s GDP is less than 40 billion euros. Only companies with a turnover of over 20 billion euros (reduced to 10 billion after 7 years).
- What are the implications for kafams in Ireland?
Large American digital companies such as Facebook, Google, Apple and Airbnb chose to set up their European headquarters in Ireland, which benefits from a corporate tax rate of 12.5%, one of the lowest in the world. The introduction of the 15% minimum tax is a radical change for these companies and for Ireland: the digital sector, which has helped the country experience rapid economic growth for the past twenty years, represents 13% of GDP. 210,000 people.
More than the short- or medium-term eviction of employers, some in Ireland fear, foreign companies are now wondering before settling or investing on the island, no longer seeing any particular benefit.
- When will the reform be implemented?
The goal is to have the reform implemented by 2023, and it is time to change the various national laws. But some questions remain unanswered, such as the ability of the US administration to force reform into the Congress administration.