One hundred thirty countries and regions, including the member countries of the Organization for Economic Co-operation and Development (OECD), agreed on July 1 on a proposal for corporate taxation regulation. They set the global minimum rate to be “at least 15%.”
Targeting large information technology companies, the digital tax would apply to companies with “sales over 20 billion euros and a profit margin of 10%.” Worldwide, this will include around 100 companies.
A final agreement outlining the details will be reached by October 2021, with the aim of introducing the tax regime in 2023. As a result, competition to excessively reduce corporate taxes will be put to a stop, and the large IT companies, which are increasingly criticized for evading taxes, will be required to bear an appropriate share of the tax burden.
This agreement will be a major turning point in international corporate tax reform, so steady implementation is essential. Countries should quickly design a detailed system of implementation, and strengthen efforts to include low-tax countries, such as Ireland, which have not agreed to the proposal.
Corporate tax rates have been decreasing for more than 30 years in the wake of economic globalization, as countries hope to attract successful companies. However, in response to the COVID-19 pandemic, many countries have increased their fiscal spending. A curtailment of corporate tax breaks has become a key factor in securing tax revenue.
It is significant that major countries around the world, though they may have conflicting interests, are cooperating to enact corporate tax reforms in response to the new era.
It is often pointed out that large IT companies move their headquarters to tax havens in order to evade higher taxes. Encouraging such companies to fulfill their social responsibilities by demanding they pay an appropriate share of the tax burden will also lead to a correction of some disparities.
For these reasons, the participating countries should hold careful discussions and reach a final agreement for its steady implementation.
Even in countries where the official corporate tax rate is 15% or more, it can be expected that there will be cases where a company wants an exception in the form of a lower rate. It is imperative that the system is designed such that there are no loopholes. A mechanism to investigate the actual corporate tax rate in each country should also be considered.
Of the 139 countries that participated in the discussions, nine — including Ireland, Hungary, and Estonia — did not agree to the proposal.
If there are countries that operate as exceptions to the agreement, the effectiveness of the new tax rate cannot be ensured. To prevent this, it is important for all countries to come together to strongly encourage participation.
(Read The Sankei Shimbun editorial in Japanese at this link.)
Author: Editorial Board, The Sankei Shimbun