Program targeted at large multinationals not paying their fair share to replace the Digital Services Tax
The Global Minimum Tax, though sketchy at this stage, has its share of skeptics who foresee tax hikes and other economic consequences of the regime for large multinational corporations that avoid paying taxes by shifting their profits to tax-friendly countries.
Since July 9, 132 countries have agreed to two-pillar approach to Organisation for Economic Co-operation and Development (OECD) and the G20 to try to ensure that large multinational companies pay their fair share of taxes, regardless of where they do business and where their headquarters are.
In a July 10 phone call with reporters from the Meeting of G20 Finance Ministers and Central Bank Governors in Venice, Finance Minister Chrystia Freeland recalled the objectives of the two pillars. The first pillar is to allocate taxing rights to the 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 end tax arbitrage and jurisdictional shopping by multinationals, to end the ‘race to the bottom’ and to secure the tax base we need. to support our people,” Freeland said.
Tax deal faces opposition in U.S. Congress Republicans. American companies are likely to be the hardest hit.
Canada, which has a federal corporate tax rate of 26.5%, has not significantly lowered its corporate tax rate over 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, whose 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 lure investors with more grants and special privileges instead of cuts Taxes.
Governments want to “cartelize” the tax system so they can impose taxes on multinational corporations to fund their spending, said Jack M. Mintz, a fellow of the chair of the School of Public Policy at the University of Calgary, in a Financial Post Editorial.
In addition, Mintz said the global minimum tax would discourage foreign investment around the world because, for example, a U.S. company investing in another country, such as Canada, would lose tax breaks like tax credits for research and development that would be available to domestic Canadian companies. .
And if a company ends up paying less tax in a foreign country, so the effective rate paid is less than the global minimum, its own country recharge tax and collect the difference between the foreign country’s rate and the global minimum rate.
“By agreeing to a global corporate tax, we would effectively be accepting a higher tax on foreign corporations compared to domestic corporations operating in Canada,” Mintz said.
The opposite situation would hurt Canadian companies investing in foreign countries that offer lots of tax breaks, like the United States, he said.
“Under the global minimum tax, Canadian companies would not be able to benefit from the same tax breaks as domestic companies 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 tax at Chartered Professional Accountants of Canada, told The Epoch Times.
“For a minimum tax, the key question is what is the tax base, how exactly is it going to work when you look at a particular country. … The idea is 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 “deal a blow to tax competition”, which prevents politicians from raising taxes.
Some countries with effective tax rates below the minimum could increase their rates to capture a greater share of the taxes paid instead of letting another country obtain that income by forcing the company in question to increase its taxes to reach the minimum, Ball said.
“Countries in general have to decide if they want to adjust their tax rate given the [minimum] 15%,” he said.
The Venice meeting was the next step after G7 meetings in London in June where the initial agreement on coordinated taxation was concluded following 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 starting in 2022, until this coordinated multilateral approach, which has been Canada’s great preference, comes into effect.