Last Thursday, 130 countries and jurisdictions reached a global agreement – many of which are historically considered – to impose at least 15 percent tax on large multinational corporations. The agreement, which is the result of years of negotiations between the OECD and the Organization for Economic Co-operation and Development, is being contested by some non-aligned countries. Opposition from the three countries that are part of the European Union: Ireland, Hungary and Estonia were specifically discussed.
The position of these states, which have a veto right to ratify the EU treaty, will increase the time it takes to finalize the details of the text (participants are set to complete it by next October), and to implement it by the expected laws by 2023.
– Also read: Global agreement on tax multinationals
The deal will only affect companies with global revenues of at least $ 20 billion a year and a dividend of at least 10 percent. One hundred big multinational companies, Accordingly Wall Street Journal), E Can create According to the OECD itself, $ 150 billion in tax revenue worldwide each year is undermining 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 it presupposes two fixed points called “pillars”.
First, to ensure a more equitable distribution of the tax revenue of these companies between countries, and to re-grant certain tax rights from the states where multinational companies operate (often at very low rates) to the states where they operate and make a profit. ., Regardless of whether they have a physical presence in these countries. According to OECD estimates, this will help redistribute about $ 100 billion in taxes annually.
The second – one to be discussed – presents a global minimum rate of corporate profit of 15 per cent, which is currently higher than that of companies in Ireland (12.5 per cent) and Hungary (9 per cent). In Italy, for a comparison, corporate income tax is divided between IRES (state tax) and IRAP (regional tax), which forces companies to pay an average of 27.9 percent profit tax.
The draft was approved by 90% of the world’s GDP, including the United States, China and Russia. However, as we have said, the governments of Ireland, Hungary and Estonia have refused to join.
Ireland has two obvious reasons for not wanting to join the agreement: in addition to offering a 12.5 per cent profit tax, it also halves the tax rate of 6.25 per cent on companies making profits from patents and software. This rate applies to most multinational companies covered by the agreement: Internet companies that offer digital services across Europe through software such as Google and Facebook.
Until 2015, the country was able to attract large American multinationals, and even more so thanks to the tax system, which allowed them to implement a strategy. “Double Irish”, Or“ Double Irish ”, because it involves the creation of two companies under Irish law. It’s often combined with another strategy. “Dutch sandwich”,“ Dutch Sandwich ”. The resulting tax avoidance strategy, Very complicated, Using the tax laws of the countries involved and the tax treaties between them, allowed multinationals to pay very low taxes on profits outside the United States – from 2.2 to 4.5 percent.
Since 2015, Ireland has amended its tax laws to end this practice, but instead reduced the rate to 6.5% to prevent multinational companies from leaving the country. The OECD agreement still puts Ireland at risk for this tax gain compared to other European countries.
However, Irish Finance Minister Paschal Donohue was willing to discuss the deal: “I could not agree to a consensus on the deal, especially the global tax rate of at least 15%,” he added on Thursday: “I have expressed Ireland’s reservation, but I am committed to supporting Ireland in this process. My goal is to find a result. ”
An analyst who heard said Euro News, Jacob Kirkegod, El Ireland Will have to Somehow the deal is compromised because the Brexit talks with the UK need the support of the European Union and the United States.
The situation is different in Hungary, where the permissible monetary policy introduced by Prime Minister Victor Orban has helped the economy grow while maintaining a high level of consensus among its citizens, despite the country’s recession in civil rights. According to Kierkegaard, due to this regression, which makes the application of the rules uncertain, companies will have no other incentive to move to Hungary than the fiscal year. Therefore, the country is likely to strongly oppose the adoption of the EU agreement.
This is a problem for European countries that badly need contracts to acquire resources from multinational companies that exempt tax authorities such as Italy, France and Germany. In fact, under EU treaties, changes in tax policy must be unanimously approved, thus preventing Hungary opposition (such as Ireland and Estonia) from ratifying the treaty. So the EU will have to negotiate with Orban. Poland opposes endorsement of Pandemic, the next generation EU recovery plan from Pandemic. This will increase the deadline for the next meeting of G20 finance ministers to be held in Venice on Friday, July 9 and weaken the union’s negotiating position.
– Also read: Half defeats to Hungary and Poland
Then there is the case of Estonia. In this Baltic country, where corporate tax rates range from 14 to 20 percent, distribution is for profit only. In other words, if a firm decides to reinvest its profits, they will not be taxed. Therefore, the time at which the tax is determined varies from the time the profit is generated to the time it is distributed. This causes the tax payment to be delayed for years, creating the problem of why and how Observed From the Estonian Ministry of Finance, “Current version [dell’accordo] If the Estonian regional branch does not tax its profits within three or four years, it allows the state where the company is located to tax its profits in Estonia. ” In short, Estonia puts other countries at risk of reaping untaxed profits at the time of production. Heard Bloomberg, Estonian Ministry of Finance He said This proposal is still unclear to predict the country’s final position on the issue.
In addition to Ireland, Estonia, and Hungary, even Peru (which did not do so because it is not currently government-owned), Sri Lanka, Nigeria, Kenya, as well as well-known tax centers such as Barbados, St. Vincent and the Grenadines.
However, the taxation system assumed by the contract would allow redistribution to take place even without joining the tax base: under the draft, if a company opens a branch in a tax network at a rate of less than 15 per cent, the country can levy a rate equivalent to the difference between the 15 per cent levied on the company’s origin tax base. In other words: Companies will no longer be encouraged to open offices in countries where subsidized taxes are imposed because they will still stop paying the same amount. This system will neutralize the competition from the tax authorities.
However, there may be other obstacles to the implementation of the plan. Most concrete: Support for US President Joe Biden is narrow in Congress, which could be reduced with next year’s midterm elections: the country needs congressional approval to implement the agreement.