Momentum grows for global minimum tax rate – The Royal Gazette | Bermuda News, Business, Sports, Events, & Community

Log In

Reset Password

Momentum grows for global minimum tax rate

Finance ministers of the world's richest countries want to strike an agreement on a global minimum tax rate by the end of the year.

The main aim is to ensure that digital giants like Amazon, Facebook and Google pay taxes in the countries where they make huge profits.

If implemented, it would significantly reduce the attractiveness of low-tax jurisdictions like Bermuda as a domicile for international companies involved in many other industries too.

Bruno Le Maire, the French finance minister, said after a meeting of peers representing the world's 20 largest economies, the G20, in Riyadh, Saudi Arabia, on Sunday: “For the first time there is wide consensus among the G20 members on the necessity of having a new international taxation system.

“We have to address the issue of digital companies making profits in many countries without any physical presence, which means without paying the due level of taxes.

“And we also have to address the key question of minimum taxation and the risk of having a race to the bottom on taxation.”

Mr Le Maire added that there was “a consensus to build a solution by the end of 2020”.

In an economic analysis of the likely impact of a rewriting of international tax rules, the Organisation for Economic Cooperation and Development estimated a 4 per cent increase in government revenues amounting to about $100 billion.

The OECD wants to agree on technical details of such a tax by July.

Bermuda is one of nearly 140 member countries of the OECD/G20 Inclusive Framework on Beps (Base Erosion and Profit Shifting), the organisation behind the initiative.

Pascal Saint-Amans, the head of tax of the OECD, said at PwC/Irish Times tax summit in Dublin last September that the purpose of the Beps project was “to kill zero-tax jurisdictions or to make sure companies wouldn't be able to locate profits in zero-tax jurisdictions, where nothing is happening”.

In its analysis, the OECD did not give revenue estimates for specific countries, but it claimed that the new rules would hit “offshore tax havens” particularly hard.

Data used for the study came from more than 200 jurisdictions and more than 27,000 multinationals and was based on the assumption that whatever countries agree would be mandatory for companies.

Just 100 international groups accounted for more than half the projected profit shifted under the new rules.

The OECD has yet to propose what the global minimum rate should be, but Mr Le Maire has suggested 12.5 per cent.

However, an international agreement may prove elusive.

The United States has reservations over the plans, because it feels American internet giants would be the chief targets. Also, required approval from the US Congress may be difficult to achieve.

Some countries, including France, have already put in place their own digital taxes ahead of any international agreement, which has not gone down well with the US. At the meeting in Riyadh, Steve Mnuchin, the US Treasury Secretary, said: “We've been very consistent in saying we think the digital services tax is discriminatory in nature against digital companies, and specifically a handful of US companies. The president was clear that we were proceeding with ... reciprocal tariffs.”

In the absence of deal, some countries will push ahead with their own digital taxes, targeting the internet giants, so more tariffs are likely in response from the US.

Angel Gurría, secretary-general of the OECD, told the New York Times on Saturday: “The trade tensions of today would look like they are not so serious compared to the consequences of something like this.

“There's the cacophony, the trade tensions that would invariably follow, and then there's the impact on growth.”

Pushing for agreement: Bruno Le Maire, France's finance minister (Photograph by Nicolas Garriga/AP)

You must be registered or signed-in to post comment or to vote.

Published February 26, 2020 at 8:00 am (Updated February 26, 2020 at 8:23 am)

Momentum grows for global minimum tax rate

What you
Need to
1. For a smooth experience with our commenting system we recommend that you use Internet Explorer 10 or higher, Firefox or Chrome Browsers. Additionally please clear both your browser's cache and cookies - How do I clear my cache and cookies?
2. Please respect the use of this community forum and its users.
3. Any poster that insults, threatens or verbally abuses another member, uses defamatory language, or deliberately disrupts discussions will be banned.
4. Users who violate the Terms of Service or any commenting rules will be banned.
5. Please stay on topic. "Trolling" to incite emotional responses and disrupt conversations will be deleted.
6. To understand further what is and isn't allowed and the actions we may take, please read our Terms of Service
7. To report breaches of the Terms of Service use the flag icon