Globally taxing times ahead
Corporation tax is poised to undergo its biggest shakeup in living memory as leading nations have committed to a global minimum tax rate. With many details still to be ironed out, businesses will need to track developments closely over the coming months and be ready to act.
Last year the Organisation for Economic Co-operation and Development (OECD) published its proposals for a global minimum rate of corporation tax. This is the next phase of the OECDs 10 year+ initiative to reduce the use of cross-border tax structuring by large multinationals to mitigate their tax liabilities.
The OECDs proposals gained widespread media coverage following the G7 Summit in June 2021, with the G7 pushing for the global minimum corporation tax rate of 15%.
At present, 132 countries have signed up to the OECDs proposals – currently expected to be applied from 2023 – which will mark the biggest change to the taxation of large multinationals in living memory.
Who is likely to be impacted?
Broadly, the global minimum corporation tax rate is designed to apply to large multinationals – defined as groups with consolidated global revenues over €750m – who have operations in countries levying corporation tax below the anticipated 15% de minimis rate. The OECD has estimated the new proposals will mean large multinationals paying an extra $150 billion per year in taxes.
Exemptions are expected to be enacted for Collective Investment Vehicles (CIVs) and Special Purpose Vehicles (SPVs) traditionally used in the Investment Management industry. However, the exemptions are still be clarified, and this will need to be monitored when the OECD provides further technical guidance.
What happens next?
Implementing a global minimum corporation tax rate across more than 130 counties will be a difficult challenge for the OECD. There are a significant number of highly complex technical issues which the OECD will need to address over the next 18 months. Even the proposed 15% minimum corporation tax rate itself may yet change.
In October, the OECD will issue technical guidance and provide a detailed report to the G20 on how the global minimum corporation tax rate is proposed to operate. Model legislation will be outlined in 2022, and the global minimum corporation tax rate will go live in 2023.
Faced with this uncertain landscape and a myriad of details that are yet to be determined, it is vital that companies keep pace with the latest developments and ensure they have access to latest analysis and expertise to enable them to react effectively.
To help navigate this, we have published a summary of the key parts of the proposals and the issues which need to be monitored over the next 18 months.