The OECD was created in the post-war period with the aim of rebuilding European countries through cooperation between its members, receiving assistance especially from the United States.
Today, its main purpose is to build policies in pursuit of social welfare, and it is dedicated to economic development through cooperation among its member countries.
As a result, for some years the organization has been discussing the creation of a global minimum tax for large companies. The discussion gained even more strength after the election of US President, Joe Biden.
The purpose of the tax, estimated to be 15% on the profits of large corporations, is to discourage these entities from taking their profits to low tax countries where they would pay less or no tax.
This practice adopted by large multinationals generates a large loss of revenue, both in the jurisdictions where they are incorporated and in those from which their profits originate.
In other words, the OECD’s intention with this approach is to establish a minimum corporate tax that shall be respected by all jurisdictions. Thus, the same large multinationals would not gain an advantage by shifting profits to low tax jurisdictions, which would foster a more stable global tax environment.
The 15% tax rate would apply only to companies with an annual revenue of more than 750 million euros.
According to experts, the adherence to the proposed tax by the Organization would also encourage investments in infrastructure, education and other strategic areas in the jurisdictions where companies are incorporated. Additionally, this measure would provide greater legal certainty in relation to global taxation, as it would reduce its variation between different jurisdictions.
With regard to the participating countries, the OECD reported that of the one hundred and forty countries present in the negotiations, only four have not joined the agreement: Kenya, Nigeria, Pakistan, and Sri Lanka. Moreover, low tax countries also tend to resist it.
For countries that do not adhere to the agreement, there may be a remaining taxation by the adhering countries, so that payment equivalent to the percentage not paid in those countries occurs. In other words, if a multinational pays taxes equivalent to 5% where it makes profits, the company’s home country can collect the other 10%, for example.
Implementation
In February, the OECD released guidance for acceding countries to help implement the new 15% global corporate tax, such as its scope, operation and transitional elements.
The revised version of the guidance will be released in late 2023.
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Published on May 15, 2023