In previous blogs we have reported on the progress of proposals for a global minimum tax for very large multinationals.
By way of reminder, the G7 which is a club of the so called “advanced” economies (comprising Canada, France, Germany, Italy, Japan, the United Kingdom and the United States but notably not China) recently reached agreement on two important issues:
• a global minimum corporate tax rate of 15% to avoid countries undercutting each other; and
• measures to ensure that very large businesses pay more tax in the jurisdictions in which they operate to prevent them claiming that the majority of their profits are made in no tax or very low tax jurisdictions.
There is currently very little in the way of detail in the G7 agreement itself. However, the process leading up to this agreement arises from an enormous amount of work carried out by the OECD since 2013.
The next step in the process is for details agreed by the G7 to be sent to finance ministers and central bank governors from the G20. This a forum comprising 19 countries and the European Union and represents the 20 countries with the world's 20 biggest economies. Unlike the G7 this includes developing nations who have a very different agenda than their industrialised counterparts.
There seem to be three broad hurdles to clear before a final deal is reached:
• tax havens/investment hubs are currently opposing a deal as this could have a dramatic impact on their economies which depend on low or no tax rates to attract investment;
• developing countries (including China and India) are worried about the impact such a change might have on their economies and are advocating a higher minimum rate; and
• there are a number of requests for particular sectors be exempt from the proposals. For example, the UK has asked for the City to be outside the scope of the rules. If many of these are granted that this might well end up watering down the final deal.
We will keep you abreast of further developments as they arise.