By Julie Martin, MNE Tax
The OECD today released 186 comment letters in response to its request for assistance in the design of a global minimum tax on multinational group profit. The OECD also released the agenda for a December 9 public consultation on the minimum tax proposal.
The aim of the global minimum tax, also called the pillar two proposal or the global anti-base erosion (GloBE) proposal, is to reduce the incentive for multinational enterprises to shift profits to low-tax jurisdictions and to set a floor for international tax competition.
The proposal consists of an income inclusion rule which would allow countries to impose a “top-up” tax on the income of a company’s foreign branch or controlled entity if that income is subject to tax at a low effective tax rate. This would be complemented with an undertaxed payment rule which would deny a deduction or impose source-based taxation, such as a withholding tax, on payments to a related party that are not subject to tax at a minimum rate.
The pillar two minimum tax is designed to complement a “pillar one” proposal that would allocate more multinational group profit to countries where a multinational’s customers or users reside.
The OECD’s goal is to help a collation of 130+ countries known as the “Inclusive Framework on BEPS” reach an agreement on both pillars or on an alternate international tax framework by the end of 2020. The ultimate goal is to get countries to agree, as a part of the deal, to repeal or halt plans to enact unilateral taxes on multinational digital firms, such as digital services taxes on revenue. Countries are enacting these new laws to make up for revenue losses stemming from their inability to appropriately tax digital firms under the existing international tax and transfer pricing framework.
In their comment letter, Business at OECD (BIAC) recommended a carve-out from the application of the global minimum tax for patent box regimes that have been approved under BEPS action 5. Further, BIAC said it supports the application of a global blending approach where a firm would have to pay an average minimum tax rate on all its foreign income.
The Tax Justice Network, on the other hand, argued that global blending should not be considered under any circumstances since this would allow multinationals to pursue complex strategies to combine higher-taxed income with low- or zero-taxed income in havens, possibly to the detriment of the ability of lower-income tax countries to defend their own tax base.
The Tax Justice Network also said that no carve outs for the proposed minimum tax should be provided as this would lead to incentives to engineer loopholes and lobbying for preferential treatment.
The United States Council for International Business (USCIB) argued that the US’s GILTI regime should be considered an acceptable and appropriate income inclusion regime under the pillar two minimum tax. Companies subject to the GILTI regime should be excluded from further application of pillar two, the USCIB said.
Moreover, because the GILTI regime applies to a US-based multinational’s domestic and foreign-controlled subsidiaries, the right to “tax back” should be solely vested with the US and the US should be vested with the sole right to audit and administer the income inclusion rule as applied to US-based multinationals, the group said.
You can download the comments at this link. (It is a large file, 54mb.)
Julie Martin
Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.
Julie has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.
Julie can be reached at [email protected].
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