OECD’s minimum tax to apply by jurisdiction

The Organisation for Economic Co-operation and Development is going to propose a global minimum tax that would apply country by country before the next meeting of G‑20 finance ministers and central bankers set for 17 Oct. in Washington, DC.

G7 leaders announced at their Biarritz summit meeting this week a pledge to update international tax rules
The OECD’s head of tax policy, Pascal Saint-Amans, said a political push was needed to relaunch the discussions and used the case of the Cayman Islands to explain the proposal.

“The idea is if a company operates abroad, and this activity is taxed in a country with a rate below the minimum, the country where the firm is based could recover the difference.”

This would work in a similar way to the new category of foreign income, global intangible low-tax income (GILTI), introduced for US multinationals by the 2017 US tax reform. GILTI effectively sets a floor of between 10.5% and 13.125% on the average foreign tax rate paid by US multinationals. It was conceived with the aim of reducing incentives to shift corporate profits to low or no-tax jurisdictions by using intellectual property.

While this framework is based on an average global rate, Saint-Amans said the OECD is working on a country-by-country basis.

“Basically, if a French company earns half its profits in the US, taxed at 25%, and the other half in the Cayman Islands, with zero tax, that gives you an average of 12.5%. If you apply it country by country, you recover taxes on half the Cayman profits,” Saint Amans said.
Critics of the proposal have said that this would infringe on the fiscal sovereignty of countries. A notion Saint Amans rejects.

 “Each state would remain sovereign and would watch what’s going on abroad so they could recover the difference. There wouldn’t be any international agency taking the place of national tax administrations.”

However, he agrees that getting this in place will not be easy and require a multinational agreement.