Opponents will keep pushing, but it’s probably too late for low tax regimes such as Ireland
A breakthrough at last: The agreement for a global corporate minimum tax has secured the backing of 130 countries (9 held out), and has been described as the biggest breakthrough in global taxation in decades. The OECD-led initiative had lost momentum in recent years because of a lack of willingness from the US, but that changed with the arrival of the Biden administration. It will see a minimum corporate tax rate of at least 15% and is expected to generate additional receipts of more than £100bn a year.
A number of low tax regimes held out against the reforms: Naturally there was opposition from current low tax regimes including Ireland, Hungary and Estonia which have successfully used the flexibility in the international tax regime to attract investment from Big Tech – including the likes of Apple, Google and Facebook. While they are likely to keep pushing up until the implementation deadline (October this year), they are unlikely to alter the course of things since the deal includes a top-up provision, which means a company would get an additional bill if a subsidiary paid less than the minimum. Taxation will now shift to countries where profits are generated, rather than where its headquarters may be listed.
What does it mean for digital service taxes? It’s understood that a number of countries, including the UK, have had to agree to dismantle their digital service taxes to secure carve-outs elsewhere (such as exemption for the UK’s financial services sector). These had been another sticking point during negotiations since many were viewed as anti-US given that’s where most of Big Tech has come from. There are also expected to be special rules that will ensure Amazon is included in the new framework, after concerns that the company’s profit margin meant it fell below the threshold.
Next steps: A formality of finance ministers approving the deal is expected to happen by mid-July with a deadline of October to work out remaining details. It would become effective from 2023.
