Last Thursday, 130 countries and jurisdictions join to a global agreement – considered by many to be historic – to impose a minimum tax of 15 per cent on large multinational corporations. The agreement, the result of years of negotiations coordinated by the Organization for Economic Cooperation and Development, the Organization for Economic Co-operation and Development, however, was objected to by some countries that did not join it. Particularly discussed was the opposition of three countries that are part of the European Union: Ireland, Hungary and Estonia.
The position of these countries, which have veto power over the adoption of the agreement by the European Union, risks lengthening the time both to finalize the details of the text (which the participants set themselves to complete by next October), both to implement it through the laws that concretely implement it, expected by 2023 .
The agreement only affects companies with global revenues of at least 20 billion euros per year and a profit margin of at least 10 percent (so about One hundred large multinational companies, to me The Wall Street Journal) , e can be born According to the Organization for Economic Co-operation and Development itself, annually around the world $150 billion in tax revenue, which has neutralized competition from tax havens and the negative effects of tax evasion on the budgets of countries affected by this phenomenon.
The text is still a draft, but expects two fixed points called “columns”.
The first is to ensure a more equitable distribution of these corporations’ tax revenues between countries, by reallocating some tax rights from the countries in which the multinationals are located (often those with very low rates) to those in which they operate and generate profits. , regardless of whether they have a physical presence in these countries. This will make it possible to redistribute about $100 billion in taxes annually, according to estimates by the Organization for Economic Co-operation and Development.
The second – which is being discussed – offers a lower global rate of 15 per cent on corporate earnings, higher than what companies currently pay in Ireland (12.5 per cent) and Hungary (9 per cent). In Italy, to make a comparison, corporate income taxes are split between IRES (state tax) and IRAP (regional tax), which cumulatively causes companies to pay an average of 27.9% of profits.
The draft agreed on countries that collectively account for about 90 percent of global gross domestic product, including the United States, China and Russia. However, as we have said, the governments of Ireland, Hungary and Estonia refused to join it.
Ireland has at least two obvious reasons for not wanting to join the agreement: In addition to introducing a 12.5 per cent dividend tax, it gives companies that profit from patents and software a half tax rate of 6.25 per hundred. This is the rate that applies to most of the multinationals covered by the agreement: Internet companies that provide digital services across Europe through their platforms, such as Google and Facebook.
Until 2015, the country was able to attract American multinational companies thanks to a more lenient tax system, which allowed them to implement a strategy called “Double Irish‘, or ‘Double Irish’, because it involved the creation of two companies under Irish law. This was often combined with another strategy called ‘Double Irish’.Dutch sandwich“Dutch Sandwich.” The Resulting Tax Evasion Strategy, very complicatedMultinational corporations were allowed to pay very low taxes on profits earned outside the United States – between 2.2 and 4.5 percent – by exploiting the tax bases of the countries involved and the tax agreements between them.
Since 2015, Ireland has changed its tax laws to end the practice, but in return it has given multinational companies a reduced rate of 6.5% to prevent them from leaving the country. Thus, the OECD agreement would jeopardize the tax advantage that Ireland still enjoys vis-à-vis other European countries.
However, Ireland’s finance minister, Pascal Donohue, was open to discussing the agreement: “I was not in a position to join the consensus on the agreement and specifically on the effective global minimum tax rate of ‘at least 15%’ today,” he said Thursday, adding : “I have expressed Ireland’s reservation, but I remain committed to the process and aim to find an outcome that Ireland can still support.”
According to a hearing analyst euronewsJacob Kierkegaard, Ireland You will have to Somehow bargain over the deal, as it needs the support of the European Union and the United States in the Brexit talks with the United Kingdom.
The situation is different in Hungary, where the loose fiscal policy introduced by Prime Minister Viktor Orban has helped the economy grow while maintaining a high consensus among citizens, despite Retreat of the state in terms of civil rights. According to Kierkegaard, precisely because of this regression, which makes enforcement of the laws so uncertain, companies will have no other incentive to move to Hungary other than tax. Therefore, the country is likely to strongly oppose the adoption of the agreement by the European Union.
This is a problem for European countries that desperately need the agreement to obtain resources from multinational companies that evade tax authorities, such as Italy, France and Germany. Indeed, according to EU treaties, changes to tax policy must be approved unanimously, so Hungary’s opposition (such as Ireland and Estonia) would be enough to prevent the entire bloc from adopting the agreement. So the EU will have to negotiate with Urbanر as it happened To agree to the pandemic recovery plan, NextGenerationEU, which Poland also opposed. This could lead to a lengthening of the time frame and a weakening of the union’s negotiating position at the next meeting of G20 finance ministers, which will be held on Friday, July 9 in Venice.
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Then there is the case of Estonia. In this Baltic country, where corporate tax rates range from 14 to 20 percent, taxes are paid only on dividends. In other words, if the company decides to reinvest its profits, it will not be taxed. Therefore, the time at which the tax is determined shifts from the time the profit is created to the time it is distributed. This results in tax payments being deferred for years, creating the why and how problem Observed From the Estonian Ministry of Finance “Current version [dell’accordo] The state in which the company is located is allowed to tax profits made in Estonia if Estonia has not taxed the profits of the local branch within three or four years.” In short, Estonia risks seeing other countries reap the profits that it did not in the time of its generation. BloombergEstonian Ministry of Finance He said That the proposal remains too vague to predict the country’s final position on the matter.
In addition to Ireland, Estonia, Hungary, and even Peru (which has not done so because it is without a government at the moment), Sri Lanka, Nigeria and Kenya, as well as well-known tax havens such as Barbados, Saint Vincent and the Grenadines.
However, the tax mechanism assumed by the agreement would allow redistribution into effect even without joining the tax havens: according to the project, if a company opened a branch in a tax haven with a rate of less than 15 percent, the company’s country of origin could charge a rate equal to the difference between that charged in tax haven and 15 percent. In other words: companies will no longer have an incentive to open offices in countries subject to subsidized taxes because they will still pay the same amount. This mechanism will neutralize competition from tax havens.
However, there may be other obstacles to the implementation of the plan. Most realistic: US President Joe Biden is backed in Congress by a slim majority, which could be scaled back with next year’s midterm elections: Congressional approval is necessary for the country to activate the agreement.