Int'l Tax News

In news analysis, Lee A. Sheppard examines the treaty issues raised by the SHIELD and GLOBE minimum tax proposals from the Biden administration and the OECD.

France stands to raise ÔøΩ900 million annually under pillar 1 of a two-pillar global tax reform plan that countries are discussing through the OECD framework, taking into account Amazon's profitable cloud segment, new research shows.

In awin for the U.S., governments from 130 countries have agreed to rewrite the rules for how countries tax corporate income. That is a big step forward for a complex project that has been years in the making andwould take years to implement. Here are some questions and answers about the deal.

A new corporate tax agreement between 130 nations is quite an achievement, but the deal is far from done. The continued resistance of Ireland in particular could scuttle the accord. 130 countries agreed to an overhaul of global corporate tax rules involving a minimum rate of 15% and changes towhere companieswill pay some of their taxes. The processwas started by the Organization for Economic Cooperation and Development in 2013 and progress has been fitful. Holdouts from the deal include Hungary, Estonia, Nigeria, Kenya, Peru and Sri Lanka, aswell as Ireland.

Big tech companies said Thursday's breakthrough in negotiations over a global tax overhaulwas a step toward avoiding a patchwork of overlapping national taxes, but executives and trade bodies said they still need to see those tax regimes disappear before calling the deal awin. The U.S. secured international backing for a global minimum rate of tax as part of awider overhaul of the rules for taxing international companies. Officials from 130 countries that met virtually agreed to the broad outlines of the overhaul. Itwould be the most sweeping change in international taxation in a century.

The U.S. haswon international backing for a global minimum rate of tax as part of awider overhaul of the rules for taxing international companies, a major step toward securing a final agreement on a key element of the Biden administration's domestic plans for revenue raising and spending. Officials from 130 countries that met virtually agreed to the broad outlines ofwhatwould be the most sweeping change in international taxation in a century. Among themwere all of the Group of 20 major economies, including China and India,which previously had reservations about the proposed overhaul.

Irelandwill need to prepare for revenue loss because of international tax reforms being negotiated at the OECD, government officialswarned. The tax changes being debated "will have implications for corporate tax receipts,"warned Finance Minister Paschal Donohoe at Ireland's National Economic Dialogue on the budget. "These challenges are all clear andwe know in advance about them,which makes it imperative thatwe put in place the steps, year by year, to address them."

Lobbying from Britain during negotiations at the OECD has led to an exemption for financial services in new global tax rules, according to the Financial Times, citing people familiarwith the matter.

More than 100 countries have reached a deal to revamp global tax rules, setting up one of the biggest overhauls of how multinational companies are taxed in years and upending decades of laws and treaties. The deal, announced by the OECD after years of negotiations, follows a Group of Seven-endorsed plan last month that called for setting at least a 15% minimum tax rate and crafting new rules to target theworld's largest and most profitable multinationals. The Organization for Economic Cooperation and Development-brokered dealÔøΩwhich 130 of the 139 countries involved in talks signed on toÔøΩoffers more details on how those companies, including high-revenue but low-margin firms like Amazon.com Inc.,will be captured.

The Biden administration and global allies scored a major victory in their push for a more balanced international corporate tax system, but still face multiple significant obstacles to completing an ambitious plan that has been years in the making. The boost came during a round of talks hosted by the Organization for Economic Cooperation and Development,where 130 countries and jurisdictions backed a plan to set a minimum corporate tax rate and establish a new regime for sharing the taxes imposed on the profits of multinational firms.

The preferential tax policies China offers to some multinational businesses could be at risk under new global rules to set a minimum corporate tax, according to a legal adviser to the Ministry of Finance. The tax planwill have an overall "positive impact" on China by improving the sustainability of fiscal revenues and providing a fair international business environment, said Shi Zhengwen, vice-president of the China Association for Fiscal and Tax Law. However, Chinawill need to adjust some of its tax policies to complywith the rules, he said.

The OECD-brokered deal to overhaul global tax ruleswas a major step forward in the years-long effort to find international agreementÔøΩbut the clock is still ticking. Negotiators are targeting October to settle more details of the planwith the goal of putting new rules in place in countries around theworld in 2023. To get there, they'll have to spend the next few months not only getting the nine countries that aren't backing the plan on board but also grapplingwith details on how the two-pillar planwill function. Questions remain overwhich jurisdictionswill give up the profits that are reallocated, how an at least 15% minimum global tax ratewill treat certain existing tax incentives, andwhich domestic digital taxeswill be rolled back under a deal.

Multinational corporations,watch out. Most of theworld's nationsÔøΩ130 countries and jurisdictions to be exactÔøΩfinally endorsed a global tax overhaul that has been in the making for years. The agreement, led by the OECD,would force corporations to pay at least 15% in taxes for their offshore profitsÔøΩawin for President Joe Bidenwhose administration pitched the idea. The OECD-led deal also includes a measure thatwould reallocate profits from large companies like Facebook Inc. and Alphabet Inc.'s Google to countries based onwhere their users are. Congresswill need to take action at home to build on the global agreement, Biden said. But that could be thorny as Republicans oppose raising corporate tax rates and Democrats hold razor-thin majorities.

The European Union's digital chiefwill meet U.S. Treasury Secretary Janet Yellen nextweek as the EU delayed plans for a digital levy after a potential global tax breakthrough. Margrethe Vestager, the EU's executive vice-president for digital issues, is now due to propose a new EU tax on technology companies' revenues on July 20, aweek later than planned, according to a document seen by Bloomberg News.

This project startedwith a clue and a hunch. The clue: The OECD's Economic Impact Assessment (EIA) mentions that its estimates for automated digital services (ADS) use U.S. Bureau of Economic Analysis (BEA) data on the information sector. The hunch: BEA data might provide fine-grained estimates of the impacts of Pillar One Amount A at the country and industry levels for ADS and consumer-facing businesses (CFB). The hunchwas correct. To the best of my knowledge, this article is the first to provide public estimates of the impacts of Amount A at the individual country and industry levels, from a single-country perspective. Corporate income tax (CIT) base gains and losses, by country and industry, are provided for both jurisdictionswith MOFAs (majority-owned foreign affiliateswith U.S. parents) and MOUSAs (U.S. majority-owned affiliateswith foreign parents). Estimates using 2018 preliminary BEA data are provided for ADS, four CFB industries (pharma, retail trade, transportation, andwholesale trade), and all industries. The key results are: (1) From the U.S. perspective, Pillar One Amount A is primarily a U.S.-Europe story since MOFAs in Europe and European MOUSAs in the United States dominate foreign affiliate sales and profits for ADS, CFB, and all industries. (2) Europe in its role as host to MOFAs and the United States as host to European MOUSAswould, for most industries, be tax-relieving jurisdictions expected to give up CIT base under Amount A. Comparing the relative sizes of U.S. and European CIT base changes across industries suggests that Europewould lose relative to United States.

The G20/OECD Inclusive Framework is currently deliberating an effective international minimum tax as Pillar Two of itswork on the tax challenges arising from digitalization. Political agreement on the so-called Global Anti-Base Erosion Proposal (GloBE) is sought for summer 2021 and prospects currently look good, in particular due to its full endorsement by the Biden administration. This paper outlines the developments leading up to the October 2020 Blueprint on GloBE and provides an assessment of its policy rationale and of certain objections raised in public hearings and in literature. Moreover, the paper critically analyses some of GloBE's key design features; it also shortly addresses its compatibilitywith tax treaty law and simplification measures.

Poland is in favor of a global minimum corporate-tax rate as long as it doesn't impede its ability to lure foreign investors by offering tax relief, Finance Minister Tadeusz Koscinski said. Alongwith Ireland and Hungary, Poland has been seen as a potential European holdout in the minimum tax plan backed by the G-7 group of theworld's richest countries. Koscinski saidwarsawwould support a deal once there's clarity on carve-outs, or exceptions towhere the new regime must be applied.with per-capita economic output at about three-quarters of the European Union average, Poland's government has prioritized catching upwith itswestern peers in the next decade. It plans to do so in part by continuing to offer special terms, including tax breaks, for companies relocating to the east European nation.

G-20 finance leaders are set to endorse on July 9-10 a deal setting a global minimum corporate tax, Reuters reports, citing a draft communique. Finance leaders to call for technicalwork to be completed so they can approve the framework for implementation in October.

The Czech governmentwill continue efforts to implement a digital services tax on tech companies until a global deal to overhaul the tax system being discussed by OECD nations is put in place. "On behalf of the Ministry of Finance, the Czech Republic is currently ready to introduce a digital tax rate of 5% at the national level as soon as possible" and to enforce it "until a global solution is adopted and implemented," a spokesperson for the Czech finance ministry said.

A carbon price floor for theworld's highest emitters could address countries' reluctance to unilaterally enhance their climate goals and prevent an inefficient network of border carbon adjustments, according to a new proposal.

The European Commissionwill release a proposal for a digital levy-based own resource soon after G-20 finance ministers agree on a two-pillar plan to modernize global corporate tax rules, EU Tax Commissioner Paulo Gentiloni said.

The OECD and EU areworking on initiatives to curb tax evasion and avoidance through broader exchange of information and tax transparency rules tailored to the rapid digitalization of global financial systems.

Argentina has made strong progresswith its legal and regulatory framework for exchange of information on request, but other jurisdictions, like South Africa and Ukraine, need morework, according to the OECD's tax transparency body.

Ireland's low tax rate has helped attract many of the new breed of footloose digital giants that don't need to be close to consumers to sell to them, and can register their intellectual propertyÔøΩfromwhich their profits deriveÔøΩjust about anywhere. Now, the U.S. is leading a charge to set a minimum tax rate of 15% on corporate profits, a plan that gained fresh support from the Group of Seven countries meeting in the U.K. Ireland's government fears that the G-7's plan for overhauling the international tax systemwould leave itwith a big hole in its budget, and make it less attractive to the many U.S. businesseswhose decision to locate in the country has transformed its economic fortunes over recent decades.

The G7 and probably the G20 countrieswill not have issueswith accepting a proposal for a minimum corporate tax rate of 15 per cent.

Some countries might try to stay outside the emerging agreement to impose a global minimum tax on corporations so those nations can use low tax rates to attract businesses. The Biden administration aims to deflect those attemptswith a powerful Shield. The SHIELD is the administration's tax threat to the rest of theworld, the flip side of Treasury Secretary Janet Yellen's cooperative diplomacy. It is an aggressiveweapon and one that mirrors how the U.S. changed its tax laws in 2010 to prod foreign banks into identifying Americans' offshore accounts to the Internal Revenue Service.

Lee A. Sheppard considers the tax data that governmentswould need to mandate be created in order to implement the OECD's pillar 2 and the Biden administration's stopping harmful inversions and ending low-tax developments proposal.

Nana Ama Sarfo looks at how climate change and carbon taxation is becoming an emerging focus area for corporate shareholders.

France is pushing for a global agreement on minimum corporate tax thatwould include China and cover as many sectors as possible, French Finance Minister Bruno Le Maire said. After a Group of Seven meeting lastweek made progress on how to share out rights to tax multinationals, attention is now turning to the details of how to apply a floor of at least 15% for large companies. Rich nations are concerned that China may seek exemptions for certain sectors as the negotiations go into the next phase.

Mindy Herzfeld notes that tax planning occurs across party lines and points out tax gaming opportunities in recent Biden administration proposals and committed to as part of the G-7 agreed-on reform of international tax rules.

German conglomerate Siemens AG could be caught by rules designed to net Amazon.com inc. into the OECD's digital tax overhaul proposal, a company executive saidwednesday. The Organization for Economic Cooperation and Development isworkingwith nearly 140 countries to rewrite how multinationals, particularly large tech groups, are taxed so that a portion of their profits are reallocated to the marketswhere they make sales. Earlier this year the U.S. proposed that these changes should be limited to the 100 largest, most profitable companies.

The European Parliament's economic affairs and legal affairs committees on June 14 approved an informal deal on public country-by-country reporting by multinational companies thatwas struck June 1with representatives of the EU member states.

On June 5, 2021, the finance ministers of the G7 (Canada, France, Germany, Italy, Japan, the U.K., and the U.S.) announced their support for a global minimum tax of at least 15% and for the reallocation of 20% of the profits above a 10% profit margin for large multinationals. Jeff VanderWolk of Squire Patton Boggs considers the implications.

Governments are on the cusp of a multilateral agreement on a two-pillar international tax reform plan, part ofwhich is expected to cover Amazon, contrary to badly informed public debate, the OECD's tax chief said.

U.S. Treasury Secretary Janet Yellen told a congressional panelwednesday that digital services taxes stand in theway of international efforts to establish a global minimum tax, and she reiterated that the Biden administration could raise tariffs on countries that leave them in place.She also told the Senate Finance Committee that she expected all European Union countries, including Ireland, to sign onto a global minimum tax agreement.

The United Kingdom has not been lukewarm about a global minimum tax rate, but a 15 percent ratewould allow countries to "use corporation tax as a lever" to support their objectives, ministers said.

Unilateral digital services taxeswon't be removed immediately even if an agreement to remove them is reached at a July Group of 20 meeting, a senior Italian official said. There needs to be coordination between the time the global, so-called Pillar One solution is applied and the time the unilateral taxes are removed, Fabrizia Lapecorella, director general of finance in the Italian Ministry of Economy and Finance, said during a pre-taped interview for Bloomberg Tax's virtual Leadership Forum onwednesday. Coordinationwill be necessary at the the technical level, she added, noting that beyond the political attention therewould be legislative constraints ahead.

French Finance Minister Bruno Le Mairewill hold talkswith officials from Ireland, Poland, Russia, India and China as he seeks to overcome any potential opposition to an agreement on international taxation in time for a Group of 20 meeting in July. The gathering in Venice has gained more importance after the Group of Seven advanced economies overcame years of division this month to commit to an outline on changes to corporate tax rules and rates. But about 140 countries in total have to sign off on the details, and some have been uneasy over how changes could impact their economies and largest companies.

The European Commission plans to introduce a proposal for a directive thatwould mitigate tax-induced debt-equity bias by offering a tax allowance for companies that pursue equity financing.

Tech firms are urging Canada to abandon a proposed 3% digital services tax on tech companies until there is agreement at a global level to overhaul tax rules. Major industry associations filed submissions thisweekwith Canada's Department of Finance during a consultation for a tax thatwould target companieswith 750 million euros ($890 million) or more in global revenues and C$20 million ($16 million) or more in domestic revenues. The taxwould be in force Jan. 1, 2022. "We encourage Canada to reconsider discriminatory tax measures that depart from norms and target specific U.S. companies," Arthur D. Sidney, the Computer and Communications Industry Association's vice president of public policy, said in a filing Friday.

Negotiators are crafting a coordinated end to digital services taxes once pillar 1 of a global tax reform plan is implemented, but countries hoping to apply DSTs to out-of-scope companieswill be out of luck.

Talks in comingweeks between more than 100 governments before a Group of 20 meeting in Julywill build on the outlines of a deal earlier this month by Group of Seven finance ministers. Despite their breakthroughs on a minimum global corporate tax rate and a shift in philosophy allowing one country to apply levies to profits of another's national champions, multiple technical details remain unresolved.

French Finance Minister Bruno Le Maire said hewill have more conversationswith reluctant countries to ensure agreements on new global tax rules are reached at the upcoming G-20 meeting and among EU member states.

The Group of 7 finance chiefs sealedwhat they called a "historic global tax agreement" at a summit meeting in Britain thisweekend.

G7 Tax deal targets the most profitable global companies.

Big Techwill pay less tax in the UK under a deal agreed at the G7 than they currently pay under the country's digital service tax, according to calculations by a think-tank.

G20 members have the opportunity to improve upon the one-sided deal proposed by a group of rich countries, and set the basis for a better deal that can stick.

Glenn Hubbard discusses how to achieve a better global tax system outside of GILTI.

Swiss-based multinationals such as commodities trader Glencorewill receive subsidies and other incentives under plans Switzerland is drawing up to maintain its competitive tax rates, even as the country prepares to sign-up to the G7's new plan for a global minimum tax on big businesses.

Ireland's second biggest opposition party has backed a "small increase" in the country's corporate tax rate, in a sign that Dublin's longstanding political consensus on multinationals is cracking after the G7 agreed a plan for global taxation reform.