Global minimum tax for corporations is coming

A breakthrough has been achieved in the negotiations on a global minimum tax for corporations. Federal Finance Minister Scholz describes the agreement as “colossal progress”.

Olaf Scholz (SPD), Federal Minister of Finance, in front of the Capitol in Washington

SThe global minimum tax rate is expected to generate additional tax revenues of 150 billion dollars as early as 2023. In addition, at Google, Amazon, Facebook and other winners of globalization, part of the taxation rights will then be transferred to the market states. As the industrialized countries organization OECD, under whose roof the reorganization was negotiated, announced on Thursday, 130 of 139 countries finally agreed to the compromise. They represent 90 percent of the world’s economic output.

“After years of hard work and intensive negotiations, this historic package will now ensure that large multilateral companies everywhere make a fair contribution to tax revenue,” said OECD Secretary General Mathias Cormann. “This package does not end tax competition – which it shouldn’t either – but it does set limits according to multilaterally agreed rules.”

Federal Finance Minister Olaf Scholz spoke of a colossal step towards more fair taxation. “We negotiated hard to achieve this good result for Germany.” In future, the large corporations will do their fair share of financing the common good. “Now we will push for a quick implementation of the results in Europe.” Since not all countries in the European Union are supposed to have approved the new concept, this will be anything but a sure-fire success – all governments in the EU must agree to tax issues a project can be realized.

The new world tax regime is to take effect for the first time in 2023

The new global tax world rests on two pillars. The first is to redistribute the taxation rights for particularly large and very profitable corporations so that the countries that serve as sales markets also participate in profit taxation, even if there are no subsidiaries or permanent establishments within their limits. This affects corporations with a turnover of 20 billion euros and a return of 10 percent.

So that Amazon also falls under this new regulation, individual company areas should also be treated in this way if they achieve these key figures. With this pillar, according to the OECD, rights to tax corporate profits of more than $ 100 billion annually will be transferred to the market states. Great Britain had insisted on a special regulation for banks and financial service providers.

Finance Minister Rishi Sunak argued that banks must hold separate capital in each country where they operate. Therefore, they would also report profits there. With the new tax rules, Britain could have levied less tax on City of London banks because they would have to pay elsewhere. So it’s about the distribution of tax revenue.

Pillar 2 aims to limit competition in corporate taxation by introducing a global minimum tax rate. If individual countries burden their companies less, other countries will be able to pull harder in the future – until a burden of “at least” 15 percent is reached for these profits.
On the weekend after next, the finance ministers from major industrialized and emerging countries want to approve the compromise when they meet in Venice. The final details will be clarified in October of this year. The new world tax regime is to take effect for the first time in 2023.