Global minimum tax opponents will not stop agreement, Saint-Amans says

By Doug Connolly, MNE Tax

Negotiations on a global minimum tax on corporations have the momentum that they need to reach an agreement now that France, Germany, and others have signaled support for recent US proposals, according to Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration.

Speaking virtually at an April 30 International Tax Policy Forum conference, Saint-Amans said that opponents of the minimum tax, like Ireland, will ultimately have to get on board for the agreement or else will face measures that will top off their lower tax rates.

Saint-Amans also suggested that the Chinese government’s reservations on a minimum tax agreement are surmountable.  

Reviewing the prospects for an agreement under the OECD’s “Pillar Two” talks on a minimum tax, Saint-Amans said there is “a very high likelihood that we get a strong Pillar Two by year-end.” While he has previously expressed optimism about an agreement on a global minimum tax, the tone has strengthened just in the past week.

During the course of the week, France and Germany, among others, signaled their support for the US proposal under Pillar Two. Meanwhile, President Biden delivered an address to Congress that, among other things, criticized corporations’ use of tax havens to avoid paying taxes.

Although Saint-Amans reiterated his position that not every country needs to agree to a minimum tax to implement a global agreement on it, he acknowledged that the agreement cannot have “big loopholes” that create risks of inversions by corporations in the US or other countries that are party to the agreement. However, he downplayed the risk of such loopholes.

He listed several reasons why he believes the minimum tax agreement will move forward on a broad scale. For one, he believes there are a lot of countries interested in such an agreement, as some countries’ government officials have already acknowledged their support.

In addition, he said that there is generally an understanding that Pillar One and Pillar Two are a package deal, and many countries that might be hesitant on Pillar Two are eager to get Pillar One. He named specifically in this respect the UK, Canada, and Australia.

Between the countries that have expressed support for Pillar Two or that are likely to agree based on a package with Pillar One, he said there is a likely coalition of the G7 plus Australia in support of an agreement. Many of the remaining OECD countries are EU countries, most of which he also believes will get on board – creating a coalition of most of the developed world.

There are doubts about whether some countries, notably Ireland with its 12.5 percent corporate tax rate, will agree to the level of minimum tax rate that the US has proposed (21 percent) or that France and Germany would support.

However, to the extent that some countries attempt to hold out, Saint-Amans said the parties to the agreement will have an “insurance policy.” Measures like the Biden Administration’s proposed “SHIELD” or the OECD’s undertaxed payments rule would address this issue by denying deductions for payments to related parties in jurisdictions with low effective rates of tax. Saint-Amans believes such measures will ultimately persuade Ireland to end its resistance to agreeing to a minimum tax.

Regarding China, he said that the country’s position on Pillar Two is “complex” because China is interested in using tax incentives to drive its development and it does not want a global minimum tax that would interfere with those incentives. However, Saint-Amans said a lot of countries use tax incentives that would not be problematic under Pillar Two. To the extent there are concerns about Chinese policies, he believes they can be accommodated, perhaps through “some form of carve-out.”

Regarding the timing for a deal, Saint-Amans still expects significant agreement will be reached at the G20 meeting in July, with details to be hammered out in the following meeting in October.