Switzerland, Estonia, Ireland seek concessions in global tax deal

By Doug Connolly, MNE Tax

OECD Secretary-General Mathias Cormann told the Swiss Finance Minister that he personally does not see a consensus on a global minimum tax at a rate above 15%, attempting to allay Swiss concerns about the Inclusive Framework’s July statement referring to a rate of “at least” 15%, in an August 30 letter published this week by the Swiss government.

Also this week, the Irish government has reportedly received the text for a revised agreement from the OECD, according to an October 4 article in the Irish Times. Ireland had similarly expressed concerns about the “at least” language in the agreement, which suggests the potential for a higher rate down the road if not initially. The Irish government has indicated it might be willing to abandon its opposition to the tax deal if the “at least” language is removed.

Countries are seeking enhanced substance carve-outs from the 15% tax rate as well, and the rate of such carve-outs is also in contention. In the letter to the Swiss government, Cormann stated that the final rate for the substance carve-out from the minimum tax for tangible assets and payroll, which was deemed “at least 5%” in the July statement, remains “one of the key outstanding issues to be resolved by October.”

Cormann explained in the letter that the substance carve-out for payroll was intended to address the concerns of countries seeking special treatment for research and development (R&D) costs, even though the carve-out included was not limited as to the type of activities that would qualify. He added that the rate has “not yet been agreed” and Switzerland may argue for a higher payroll carve-out.

Regarding Swiss concerns about the pace of the implementation timeline, Cormann said that the OECD is considering deferring implementation of the undertaxed payments rule to address such concerns. The July statement provided that the global anti-base erosion (GloBE) rules, including the undertaxed payments rule, should be enacted by jurisdictions in 2022 to become effective in 2023. However, the statement also mentioned the possibility of transition rules, such as deferred implementation for the undertaxed payments rule.

Estonia, which remains among the holdouts from endorsing the July statement, is also seeking concessions from the deal. Specifically, Estonia requests “an exception in terms of installment period or taxation threshold,” according to an October 3 ERR report. Estonia’s finance minister told ERR that a solution has been proposed on a threshold exemption but that the country seeks to ensure the threshold is set high enough to have an impact.

In discussing efforts to unite the EU on the global minimum tax deal, European Commission tax director Benjamin Angel last week noted progress in negotiations with Estonia on technical aspects of the agreement that he believes would address the country’s concerns. Negotiations continue and progress has been made as well, Angel claimed, with Ireland and Hungary regarding those country’s concerns and objections to the July statement.

On the other end of the spectrum, Spain’s budget minister stated that the 15% global minimum tax in Europe is “unstoppable” at this point, according to an October 3 Financial Times interview. She further suggested that Europe will move ahead even if the US fails to enact the minimum tax agreement.

The US already has in place a minimum tax on the foreign earnings of US companies – the global intangible low-taxed income (GILTI) provision enacted in 2017. However, the tax applies at a lower rate and is calculated differently than would be required under the minimum tax terms agreed to by 130-plus countries in July.

The ability of the US Congress to pass changes to the minimum tax, which are sought by the Biden Administration, remains uncertain. Moderate and progressive Democrats continue to clash over the provisions in the budget reconciliation bill in which the corporate tax changes are expected to be included.