Regime targeting large multinationals that do not pay their fair share to replace the digital services tax
The global minimum tax, although not detailed at this point, has its share of skeptics who predict higher taxes and other economic impacts of the regime targeting large multinationals who avoid paying taxes by shifting their profits to countries fiscally advantageous.
Since July 9 132 countries have accepted the two-pillar approach of Organisation for Economic Co-operation and Development (OECD) and the G20 to try to ensure that large multinational corporations pay their fair share of taxes, regardless of where they operate and where their headquarters are located.
In a July 10 call with journalists from Meeting of G20 Finance Ministers and Central Bank Governors in Venice, Finance Minister Chrystia Freeland reiterated the objectives of the two pillars. The first pillar is to assign taxing rights to countries where the world’s largest and most profitable multinational companies, including digital companies, do business, and the second pillar introduces a global minimum corporate tax. ‘at least 15%, she said.
“This is an opportunity for us to act together to put an end to tax arbitration and shopping for jurisdiction by multinationals, to end the” race to the bottom “and to secure the tax base we have. need to support our people, ”Freeland said.
The tax deal faces opposition in the US Congress from Republicans. American businesses are the hardest hit.
Canada, with a federal corporate tax rate of 26.5 percent, has not significantly lowered its corporate tax rate in the past 10 years like some other countries have, and Freeland said the agreement “will level the playing field for Canadian workers and businesses in a global economy.” . “
However, a handful of countries oppose the deal, including Ireland and Hungary, including corporate tax rate are less than 15%, 12.5% and 9% respectively.
‘Global tax cartel ”
Franco Terrazzano, federal director of the Canadian Taxpayers Federation, is wary of the deal, saying it will pave the way for higher taxes and politicians to entice investors with more grants and special privileges instead of lowering Taxes.
“A global tax cartel will mean an inevitable march towards higher tax bills and more pork for businesses with access to politicians,” he said in a commentary in the Niagara Independent.
Governments want to “cartel” the tax system so that they can accumulate taxes on multinationals to finance spending, said Jack M. Mintz, president of the School of Public Policy at the University of Calgary, in a statement. Financial Post Editorial.
Additionally, Mintz said the global minimum tax would discourage foreign investment on a global scale, because, for example, a U.S. company investing in another country, such as Canada, would lose tax breaks such as corporate credits. research and development tax that would be available to domestic Canadian companies. .
And if a company ends up paying less tax in a foreign country, so that the effective rate paid is lower than the global minimum, its own country reload tax and collect the difference between the foreign country’s rate and the overall minimum rate.
“By accepting a global corporation tax, we would effectively accept a higher tax on foreign corporations compared to domestic corporations operating in Canada,” Mintz said.
The reverse situation would hurt Canadian companies investing in foreign countries that offer many tax breaks, such as the United States, he said.
“Under the global minimum tax, Canadian businesses would not have access to the same tax breaks as domestic businesses operating in foreign markets.
He added that it is not clear that a global minimum tax is in Canada’s best interest.
Details to come
For now, the devil is in the details and it would likely be difficult for companies to start making concrete plans, Bruce Ball, vice president of taxation at Canada’s chartered professional accountants, told The Epoch Times.
“For a minimum tax, the key question is what the tax base is, how exactly is it going to work when you look at a particular country. … The idea is that there shouldn’t be a lot of exemptions or credits, ”Ball said, adding that factoring in provincial or state taxes is another issue.
Terrazzano said the global minimum tax would “strike a blow against tax competition”, preventing politicians from raising taxes.
Some countries with effective tax rates below the minimum might increase their rates to capture a larger share of the taxes paid instead of having another country obtain that income by forcing the business in question to increase its income. taxes to meet the minimum, Ball said.
“Countries in general have to decide whether they want to adjust their tax rates given the [minimum] 15 percent, ”he said.
The Venice meeting was the next step after G7 meetings in London in June where the initial agreement on coordinated taxation was reached as a result of the work of the OECD. Countries signing the agreement aim to finalize detailed implementation this fall.
In the meantime, Canada will implement a digital services tax from 2022, until the entry into force of this coordinated multilateral approach, which has been Canada’s great preference.