Never seen before OCDE pact for 15% minimum global corporate tax

[paxmao]

A global corporate tax rate of at least 15% was agreed upon by 130 countries, the Organisation for Economic Co-operation and Development (OECD) said on Thursday.
But Hungary and Ireland were part of a small group of countries that did not agree on the tax rate on multinationals.
The Irish government expressed its "broad support" for the agreement but noted its "reservation about the proposal for a global minimum effective tax rate of ‘at least 15%’

Does 15% sound like too much. Certainly not, most countries, even Ireland and perhaps except tax havens, have a higher official tax than 15%. It is a step in the right direction, however:

- The problem is rarely the minimum tax, but rather the private deals of governments with large corporations to lower this to, sometimes, near zero taxes.
- Countries that are less attractive for investments cannot lower their taxes. This equates to having to sell your oranges at 50 cents a pound no matter if they are ripe, large, small, juicy or dry.
- Since not all countries participate, this does not address the problem of corporations setting shadow structures on these.

One of the key points however is the intent of the states to charge tax where goods are consumed. This is obviously aimed at Google, Facebook, Amazon, Netflix and the like, who, until now were declaring the profits where they choose. This would look as simple as this:

- An iPhone is manufactured in China or India. It costs 25 USD.
- This iPhone is sold to a company in a lox tax country. The iPhone is sold for 25 USD and one cent. One cent of profit is taxed in China or India at (e.g.) 30%. They pay .3 cents of taxes.
- An Irish corporation buys the iPhone for 200 USD. This is taxed at the low tax countries profit tax (e.g. 1%, so they pay 2 USD there)
- The iPhone is now in the European Union, it travels freely to Germany where it is sold at 210 USD. This profit is taxed in Ireland at 10% (thanks to an special agreement). That is 1 USD of tax.
- VAT is applied at 20%, that is around 40 USD. That´s paid in Germany.

Apart from VAT, The real tax at that 15% minimum if you do not do all this tax avoidance is (210 - 20) *15%, plus VAT.

Excluding VAT, the tax should have been 28.5 USD and they have managed to pay 3.3 USD. This is a very basic example and figures are probably far from accurate, but you get the idea. A solution has to address this pick and choose of where to pay.

[1714032855]

1714032855

[clippers]

As you mentioned, I think the biggest problem with this agreement is to exacerbate the imbalance between developed and developing countries.

As you mentioned, the iPhone is manufactured in China or India, and the cost is only $25, and the tax to be paid is 0.3 cents. The Irish company bought the iPhone and paid $1 in taxes. In the end, the iPhone was sold in Germany at a tax rate of approximately $20.

Obviously, the developed countries get more profits, while the manufacturing-based developing countries can only get a small return. I think it will also accentuate the inequalities between rich and poor countries. And 60% of the minimum tax revenue will be reaped by G7 countries. Developing countries, which represent more than a third of the world's population, are expected to receive only 3% of the revenue. (Quote from Parrinello）

[stompix]

Excluding VAT, the tax should have been 28.5 USD and they have managed to pay 3.3 USD. This is a very basic example and figures are probably far from accurate, but you get the idea. A solution has to address this pick and choose of where to pay.

I have a far better solution. Why not change the tax in all countries to that of Ireland?
Doesn't it make far more sense, companies would not have to go through all this, you won't have a lot of guys chasing them down and products would be much cheaper for everyone ? Of course, the governments would have to cut their spending and they will not have that much leverage when trying to bribe voters with claims that they are fighting the evil corporations and they are spending all their blood on these battles, but I could live with that.

Taxes, taxes and taxes...
All those governments have one single plan, tax the hell out of everything and try to hand as many freebies as they can to buy some votes, it doesn't matter than long term you're ruining your economy, it matters that you get the 51% necessary so you're set for 4 years.

As you mentioned, I think the biggest problem with this agreement is to exacerbate the imbalance between developed and developing countries.
~
Obviously, the developed countries get more profits, while the manufacturing-based developing countries can only get a small return. I think it will also accentuate the inequalities between rich and poor countries.

You're looking at it from the wrong point of view.
If there would be no rich countries to pay 250$ for that phone the poor manufacturing countries would be out of a job!
Try to sell that for 200$ right from the factory and let's see what happens, in one month the factory is in another country.

[paxmao]

Excluding VAT, the tax should have been 28.5 USD and they have managed to pay 3.3 USD. This is a very basic example and figures are probably far from accurate, but you get the idea. A solution has to address this pick and choose of where to pay.

I have a far better solution. Why not change the tax in all countries to that of Ireland?
Doesn't it make far more sense, companies would not have to go through all this, you won't have a lot of guys chasing them down and products would be much cheaper for everyone ? Of course, the governments would have to cut their spending and they will not have that much leverage when trying to bribe voters with claims that they are fighting the evil corporations and they are spending all their blood on these battles, but I could live with that.

As you mentioned, I think the biggest problem with this agreement is to exacerbate the imbalance between developed and developing countries.
~
Obviously, the developed countries get more profits, while the manufacturing-based developing countries can only get a small return. I think it will also accentuate the inequalities between rich and poor countries.

You're looking at it from the wrong point of view.
If there would be no rich countries to pay 250$ for that phone the poor manufacturing countries would be out of a job!
Try to sell that for 200$ right from the factory and let's see what happens, in one month the factory is in another country.

On every country having the same tax as Ireland, that is kind of what happened with the pact. Except that some countries won´t accept it, thus leaving room open.

On the manufacturing on poor or rich countries, that is unrelated to tax, as the price of the iPhone is unrelated to its real production cost. I am not saying that it should be manufactured in one place or another at all. The example is how the tax that should be paid in the manufacturing country and then in the destination country gets avoided by stating most of the profit as made in a third country that does nothing but has low tax.

[stompix]

On every country having the same tax as Ireland, that is kind of what happened with the pact. Except that some countries won´t accept it, thus leaving room open.

First, there was no pact, Ireland didn't agree to it, so the rest can get that 15% and stick it where it belongs.
Second it not about every country having the same tax as Ireland but more on Ireland raising its tax to other countries levels.

On the manufacturing on poor or rich countries, that is unrelated to tax, as the price of the iPhone is unrelated to its real production cost. I am not saying that it should be manufactured in one place or another at all. The example is how the tax that should be paid in the manufacturing country and then in the destination country gets avoided by stating most of the profit as made in a third country that does nothing but has low tax.

Why should any tax be paid in the manufacturing country?
You made a product worth 25$, here is 25$, goodbye!
I bought something worth 25$, it's my business to whom I sell it and how much and where this happens, my money my product!
If I sell you my car and I make 2000$ on top of what I bought it a year ago should I pay 10% to the German government because it was manufactured there?

[Sterbens]

As George Turner, Executive Director of TaxWatch, puts it, "we're going to see that what's more risky is tax havens like Bermuda, where they can afford not to pay taxes".
the global corporate tax consensus no longer sees a tax haven, as the G7 has suggested that the 15% tax levied on every major corporation will not change their base under global consensus.

while José Castaneda has high hopes for every major country to continue to encourage and provide full support for this international tax rule. thus making a kind of balanced agreement between the tax application system regulations.

and if the deal is not done, then many companies are quite worried, where they get a discount of 10 to 30%.

as head of aviation finance at KPMG Joe O'Mara continues to ensure that industries such as aircraft leasing will remain on the defensive without evading taxes every year.

[teosanru]

A global corporate tax rate of at least 15% was agreed upon by 130 countries, the Organisation for Economic Co-operation and Development (OECD) said on Thursday.
But Hungary and Ireland were part of a small group of countries that did not agree on the tax rate on multinationals.
The Irish government expressed its "broad support" for the agreement but noted its "reservation about the proposal for a global minimum effective tax rate of ‘at least 15%’

Does 15% sound like too much. Certainly not, most countries, even Ireland and perhaps except tax havens, have a higher official tax than 15%. It is a step in the right direction, however:

- The problem is rarely the minimum tax, but rather the private deals of governments with large corporations to lower this to, sometimes, near zero taxes.
- Countries that are less attractive for investments cannot lower their taxes. This equates to having to sell your oranges at 50 cents a pound no matter if they are ripe, large, small, juicy or dry.
- Since not all countries participate, this does not address the problem of corporations setting shadow structures on these.

One of the key points however is the intent of the states to charge tax where goods are consumed. This is obviously aimed at Google, Facebook, Amazon, Netflix and the like, who, until now were declaring the profits where they choose. This would look as simple as this:

- An iPhone is manufactured in China or India. It costs 25 USD.
- This iPhone is sold to a company in a lox tax country. The iPhone is sold for 25 USD and one cent. One cent of profit is taxed in China or India at (e.g.) 30%. They pay .3 cents of taxes.
- An Irish corporation buys the iPhone for 200 USD. This is taxed at the low tax countries profit tax (e.g. 1%, so they pay 2 USD there)
- The iPhone is now in the European Union, it travels freely to Germany where it is sold at 210 USD. This profit is taxed in Ireland at 10% (thanks to an special agreement). That is 1 USD of tax.
- VAT is applied at 20%, that is around 40 USD. That´s paid in Germany.

Apart from VAT, The real tax at that 15% minimum if you do not do all this tax avoidance is (210 - 20) *15%, plus VAT.

Excluding VAT, the tax should have been 28.5 USD and they have managed to pay 3.3 USD. This is a very basic example and figures are probably far from accurate, but you get the idea. A solution has to address this pick and choose of where to pay.

I think you are mistaken in two aspects. One is that the 15% tax rate is basically created for Double tax avoidance agreements. This means when a foreign company operates in a country it will either pay the tax at the rate specified in that country or the rate of DTAA whichever is lower, This is done to avoid the problem of double taxation because the same income used to get doubly taxed in both the source country and the home country, this practice actually made a lot of companies set up their head offices in Off-shore tax-free Islands. This is why OECD decided to give this thing a nod.

Secondly talking about the iPhone thing. Can you please refer to the source of your calculation? Because if you manufacture in India or China you surely pay the VAT or the GST, even if I assume that on exports it can be rebated but in Income tax, there is a section of transfer pricing which means the margins on your products should always be adequate to ensure that you don't transfer profits into a lower tax country. This section can be invoked here for sure.

[verita1]

These inconsistencies in the economy are opening the opportunity for others in the markets. Taking as an example the iPhone phone that its biggest competitors tend to offer cheaper phones like Xiaomi, Samsung, Huawei among others.

Not everything is bad, despite everything the global economy benefits by opening jobs to meet the demands.

[UKprod]

Kindly change the subject. It is OECD and not OCDE, which I believe you are aware too as you have written on OECD below.

The new radical changes that you are talking about forms part of new edition of Base Erosion and Profit Shifting (BEPS) which is known as BEPS 2.0. This includes the 2 pillars as below:
Pillar 1: Revising the nexus rules and profit allocation rules - This is mainly meant for revising the nexus of where digital services are consumed. Because determining the nexus of digital goods and services is what causes the highest confusion.

Pillar 2: Setting up of the new global minimum tax rules - Here the nexus in market jurisdictions should arise in which case the income would be taxable in the market jurisdiction. Here there is a distinction between countries that are developed countries(GDP more than 40B Euro) where the corporation should have at least 1M Euro in revenue and the same threshold is 250,000 Euro in underdeveloped countries.

Further, in your example, there is a bit of confusion: Just because an Irish corporation buys Iphones it will not be taxed in Ireland. The taxing rights stay with the country where the sale actually happened i.e. where the transfer of the risk/ownership of the goods actually took place. Of course the MNEs would structure the deal in such a way that it seems that the sale took place in a low tax jurisdiction. But Tax treaties provide that if the intention of the transaction was only to avoid taxes, then corporations can be taxed in the other state (the one selling goods) as well. But it is inaction of the government/tax offices to actually chase these corporations that is the issue.

Also the new minimum tax rules under Pillar 2 is supposed to stop these MNEs from avoiding a lot of taxes and could finally bring parity in taxing of large MNEs and smaller corporations.

[el kaka22]

I believe that 15% is not even enough, that is just way too little. If a company still wants to handle their business in a shadowy nation, hide their wealth in panama or whatever then you have to punish them in an amount that has never seen before. Make it like 10 billion dollars for each nation they work in.

Just to give an example, lets say facebook is doing something shady and people like mark hiding their money in panama, in that assumption facebook is all over the world right? Make it 10 billion dollars for each nation they work with and it becomes nearly 150-200 billion dollars, in that case they will of course fail to pay that and it will be insanely hard to overcome that problem and continue to exist, they can still find a way but I can guarantee you that they will play nice after that and all the other nations will be afraid. The problem with big companies hiding their wealth is that no government does anything about it, give them something to fear and they will follow the rules like everyone else.

[teosanru]

I believe that 15% is not even enough, that is just way too little. If a company still wants to handle their business in a shadowy nation, hide their wealth in panama or whatever then you have to punish them in an amount that has never seen before. Make it like 10 billion dollars for each nation they work in.

Just to give an example, lets say facebook is doing something shady and people like mark hiding their money in panama, in that assumption facebook is all over the world right? Make it 10 billion dollars for each nation they work with and it becomes nearly 150-200 billion dollars, in that case they will of course fail to pay that and it will be insanely hard to overcome that problem and continue to exist, they can still find a way but I can guarantee you that they will play nice after that and all the other nations will be afraid. The problem with big companies hiding their wealth is that no government does anything about it, give them something to fear and they will follow the rules like everyone else.

First of all, OECD was an arrangement where issues relating to tax evasions are discussed. As mentioned above by me 15% tax rate is for double tax avoidance only. These companies also have created a law relating to Notified Jurisdictional Area(NJA), in this business which interact with companies in these areas like Panama are heavily taxed, basically, the amount of tax which would have been paid by companies in NJA is recovered from business in their own countries.

Secondly, I don't sometimes understand bitcoiners, on one hand, they want that bitcoin should not be taxed and therefore they would pay the least taxes to the government but on the other hand, they want Companies operating globally to pay the highest tax possible. Strange dubious behavior.

[fiulpro]

Secondly, I don't sometimes understand bitcoiners, on one hand, they want that bitcoin should not be taxed and therefore they would pay the least taxes to the government but on the other hand, they want Companies operating globally to pay the highest tax possible. Strange dubious behavior.

Well honestly the reason there are problem regarding bitcoins and tax is because in most of the countries the taxation of Bitcoins is not even considerably fair. To decrease the popularity of such investments government is trying to make unfavourable situations scattered around. Therefore a commoner who have invested their wealth in Bitcoins gets worked up whereas the companies who use bitcoins to avoid taxes are also there. They are the one's who should be facing the consequences.

But regarding taxation pertaining to bitcoins I am quite happy since you are only supposed to pay if you have earned more than 2 Lakh rupees. Which is quite fair. But this is not the case with all the countries tho.

These inconsistencies in the economy are opening the opportunity for others in the markets. Taking as an example the iPhone phone that its biggest competitors tend to offer cheaper phones like Xiaomi, Samsung, Huawei among others.

Not everything is bad, despite everything the global economy benefits by opening jobs to meet the demands.

But what they are paying for the particular job is sad. The reason why these big companies are even investing in such Nations are because they are providing them with added benefits of cheap labor and instead of providing them benefits they seem to get on this corrupt train.

These companies can afford to pay the workers well, but they choose not to. Make them work twice as hard. But then again they are far better than anything else since during pandemic there are worse things to consider.

(( Remember what Kylie Jenner did , this was just an example how they treat them ))

[paxmao]

On every country having the same tax as Ireland, that is kind of what happened with the pact. Except that some countries won´t accept it, thus leaving room open.

First, there was no pact, Ireland didn't agree to it, so the rest can get that 15% and stick it where it belongs.
Second it not about every country having the same tax as Ireland but more on Ireland raising its tax to other countries levels.

On the manufacturing on poor or rich countries, that is unrelated to tax, as the price of the iPhone is unrelated to its real production cost. I am not saying that it should be manufactured in one place or another at all. The example is how the tax that should be paid in the manufacturing country and then in the destination country gets avoided by stating most of the profit as made in a third country that does nothing but has low tax.

Why should any tax be paid in the manufacturing country?
You made a product worth 25$, here is 25$, goodbye!
I bought something worth 25$, it's my business to whom I sell it and how much and where this happens, my money my product!
If I sell you my car and I make 2000$ on top of what I bought it a year ago should I pay 10% to the German government because it was manufactured there?

Perhaps what I did not state clearly is that all companies are really owned by the same corporation that deflates the benefit in countries with high tax and re-inflates in low tax countries by setting the prices at the convenience. Other than that my basic example is very clear IMHO and it is easy to see how taxes are avoided by the corporate structure chosen. I cannot say much more.

Re why taxes on the manufacturing country, these have to be paid because the company that manufactures the product makes a profit, thus should pay tax as opposed to deflating artificially the price and benefit. It should be all about the real value added.

Re there is no pact - 130 countries do have a pact. Ireland will likely have fallout when negotiating other things in Europe due to their decision, as it was Europe not the US the main promoter of this.

RE other people speaking of bitcoin, think of this:

-  You buy bitcoin at 1000
- Bitcoin is now at 30000
- You sell your bitcoin to a company in a tax haven for 1000 a piece. OTC, so you can sell at whatever price you want. You have not made profit, thus no tax is applied to you.
- The company, which you own but you do not declare as yours, sells that bitcoin in a exchange for 30000.
- You don´t pay taxes, as the tax haven does not require you to do so.

Not sure it would work, but this is similar to what the big corps do. Except that it is legal for them but not for you (you have to declare off-shore earnings in most countries).

[Hydrogen]

The real problem with topics like this is basic education doesn't cover basic principles of taxation. The public doesn't know enough to legitimately say if tax hikes are good or bad policy. People have no idea if they're being taxed fairly or unfairly. Or which tax policies they should support to further their own self interests.

Supporters of global minimum tax rates don't know if they will improve their quality of life, give them more opportunities, create jobs. People who support this do so without a real motive. They have no idea why global tax rates are proposed or what the end goal behind them is.

There was an interesting argument made during Trump's Presidency where people complained Trump's tax hikes on china would be passed on to US consumers. The most basic question someone might ask on this is who pays for these tax hikes. What guarantee do people have that collected tax revenues will be used to benefit the people, rather than fund dubious wars or causes that the people taxed couldn't care less about.

[Sithara007]

First, there was no pact, Ireland didn't agree to it, so the rest can get that 15% and stick it where it belongs.
Second it not about every country having the same tax as Ireland but more on Ireland raising its tax to other countries levels.

Ireland is a member of the European Union, so I don't think that Germany or any other EU nation can impose a "special tax" on imports from that country. That will go against one of the basic principles of the European Union. The desperation from the part of governments is understandable. Revenues are not increasing at a rate as per the expectation of the government. With every passing year, the general population is demanding more and more freebies. The income taxes are already sky high in countries such as Germany (up to 60% in some cases) and the VAT is also one of the highest in the world. Now the only option is to find new avenues, such as corporate tax.

[jaysabi]

On every country having the same tax as Ireland, that is kind of what happened with the pact. Except that some countries won´t accept it, thus leaving room open.

First, there was no pact, Ireland didn't agree to it, so the rest can get that 15% and stick it where it belongs.
Second it not about every country having the same tax as Ireland but more on Ireland raising its tax to other countries levels.

Ireland’s tax agreements with multi-national companies have been ruled by the court’s to violate EU laws in the past, so Ireland I think is an outlier. 130 countries signed on, there is clearly broad international support. Ireland even agreed in principle, they just think 15% minimum is too high, but their entire pitch to multi-nationals is as a tax haven. If they join a minimum tax pact, there’s no real reason to HQ in Ireland anymore.

[LoyceV]

I have a far better solution. Why not change the tax in all countries to that of Ireland?
Doesn't it make far more sense, companies would not have to go through all this, you won't have a lot of guys chasing them down and products would be much cheaper for everyone ? Of course, the governments would have to cut their spending and they will not have that much leverage when trying to bribe voters with claims that they are fighting the evil corporations and they are spending all their blood on these battles, but I could live with that.

Taxes, taxes and taxes...
All those governments have one single plan, tax the hell out of everything and try to hand as many freebies as they can to buy some votes, it doesn't matter than long term you're ruining your economy, it matters that you get the 51% necessary so you're set for 4 years.

I live in a country with very high taxes. On wages, that is. I also live in a tax paradise. For multinationals, of course. I would love to see government spend a bit less, but they're not going to do that. Taxing rich corporations would be good, because I don't like how "capital" is taking more and more wealth away for "labor". I've seen examples in which Starbucks pays a fraction of a percent in taxes, while competing with the small business owner next door who's tax rate is hundreds of times higher. That's just not right.
I'm afraid though it won't help, and those corporations will just find the next loophole.

When it comes to income tax it's interesting to note that countries with the highest taxes are generally the nicest countries to live in (I'm not sure about the cause and effect though). See Highest Taxed Countries 2021: you'll find the lowest income tax in countries like Ghana, Mozambique and Iraq. The highest taxes in the list are paid in South Korea, Canada and Japan.
I do believe it would be better for most people if corporate taxes go up a bit, and income taxes go down a bit. I wish I could get in on this 15% tax deal.

[hugeblack]

Taxes on multinational companies will not succeed unless there is a global effort to do so, and this effort will not be achieved unless by concerted efforts by many countries to impose a globally agreed minimum and stress on that, otherwise it will be considered an additional advantage for countries that are considered safe havens and an additional burden on the citizen being He is the one who pays the real price of the goods.

15% sounds good as many countries charge up to 17% tel taxes.

[Nhazwrath]

One of the things I see people Not notice all the time when talking about corporations and taxes.


And this is very important.   

Corporations.   Never. Ever. Pay taxes.

Seems like a BS statement right?   Work with me a second.

Who buys stuff?  you me the person next door.   who sells stuff? those evil corps!  So when a corp charges you money for items/services whos actually paying again?  why its the Consumer. 

Corps Always, and I mean that Always pass on what ever tax governments charge them to the consumer.  Some larger corps actually back charge the gov Administration time to collect that tax for that gov.

So when you start talking about How much a corporation Needs to Pay for what ever you think some sort of envy/justice due to them making money and you aren't compared....

Stop Stabbing yourself in the foot for the Love Of God.  Its ALWAYS YOU paying those taxes, ALWAYS, 100% of the time.  its Never those corporations.  Its always You and You and You to Governments that tend to waste it. Gov will Always tell the story that somehow that corp isnt paying its fair share.   It never pays ever anyways.  no matter what the story is.

Remember that!

[LoyceV]

Who buys stuff?  you me the person next door.   who sells stuff? those evil corps!  So when a corp charges you money for items/services whos actually paying again?  why its the Consumer. 

Corps Always, and I mean that Always pass on what ever tax governments charge them to the consumer.

You're ignoring competition with this. If StarBucks charges $4.15 for their "coffee" and makes about 30% profit, they earn $1.24. If they currently pay virtually no taxes and it goes up to 15%, they'll pay $0.19 more than they do now. If they raise their prices by $0.19, they'll sell less and the tax-paying small business next door sells a bit more.