Commencing on January 1st, businesses with annual sales above 750 million euros will be required to adhere to the OECD’s minimum tax rate of 15 percent. Gentiloni, the EU commissioner: “This is how we curb the race to the bottom.” However, several nations are still absent.
Brussels – An important step towards achieving tax justice: the EU directive requiring multinational corporations operating on EU territory to pay a minimum effective tax rate of 15 percent went into effect at the beginning of the year. As was to be expected with tax matters, the 27 Members finally voted in favour in December 2022 after protracted deliberations.
Worldwide, 139 nations—including the US, China, India, and Russia—representing more than 90% of the global GDP adopted the international fiscal reform that the Organisation for Economic Cooperation and Development (OECD) designed. The “second pillar” of the OECD reform is the imposition of minimum taxation on major corporations; the first pillar centres on reallocating taxable profits. Ending the so-called “race to the bottom,” also known as tax dumping, entails gradually lowering income tax rates in order to entice multinational corporations to invest in domestic economies. Among the EU 27, the UK, Norway, Australia, South Korea, Japan, and Canada were the first to carry out the reform. Numerous people remain unaccounted for.
All large companies with annual sales above 750 million euros, excluding government agencies, non-governmental organisations, pension and investment funds, will need to lay their heads down. Nations having corporate tax rates between 9 and 12 percent, such as Hungary, Bulgaria, Ireland, and Cyprus, will have to abide with the directive and raise the tax on multinational corporations that constructed residences in areas where they believed there would be tax benefits. The major Irish tech companies—Amazon, Microsoft, Apple, Google, and Meta—are among the best examples.
In particular, the directive offers a standard set of guidelines for determining and enforcing a “top-up tax” in a given nation in cases when the effective tax rate is lower than 15 percent. If a foreign country where a subsidiary company is situated does not impose the minimum effective rate on it, the parent company’s member state will impose a top-up tax on the subsidiary. Furthermore, the directive guarantees efficient taxes in scenarios when the main business is situated outside of the European Union.
in a nation with low taxes and no comparable laws.
The European Union Commissioner for Economic Affairs, Paolo Gentiloni, declared “a new dawn for the taxation of large multinationals.” “A significant step towards a system of fairer corporate taxation.” Global revenue from the tax overhaul could reach $220 billion, according to OECD projections. As long as all parties honour their commitments and implement the agreement.
