The first decade of October 2021 witnessed that the international tax system is going to be reformed. The world is discussing to impose a universal global minimum corporate tax, while in Europe, lawmakers are pushing for tougher policy against tax havens and wealthy people who are using offshore jurisdictions to hide illicit assets.
136 states of the world have agreed on immense tax reform of modern history and want to impose a unified global corporate tax rate at 15 percent. The document officially titled as the ‘Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy’, includes the implementation plan for two years and says that the work will continue to progress in consultation with stakeholders.
This is an unprecedented development in modern history. The tax is supposed to be active by 2023. According to the international media, the motives behind this initiative is to force tech-giants, such as Google, Amazon, Facebook, and many more, to pay taxes ‘fairly’, as most of them are headquartered either in the USA or in jurisdictions with low taxes, like Ireland. Because of that taxes are not distributed justly among the states, while those companies are benefiting from small markets as well, the supporting nations argue.
The idea of a unified global corporate tax is not new. During the Trump’s administration, the US strongly opposed it, but things have changed after the election of Joe Biden. U.S. Treasury Secretary Janet Yellen favored the idea in April 2021 and suggested a global minimum to set at 21 percent. Although, later in June, she called on G20 states to impose a unified 15 percent.
Some argue that the shift in the US position – from opposing the idea to initiating it, was caused by the unilateral actions of big states, such as the UK, Franca, or India, which had started taxing tech giants.
All 136 states (see the list below), which make 90 percent of the world’s economy, have agreed not to impose any unilateral tax until 2023. The two-year period should be used by the legislators to ratify the treaty. Experts expect that ratification in the US Congress, where Democrats have a fragile majority, and even in many other countries will encounter many obstacles.
The countries with low taxes were against this initiative. Like Ireland or the Netherlands, which are now hosting dozens of international companies attracted by the low tax on profit. Most leading US tech giants are generating profit from these countries. But finally, they have also joined the statement.
Some countries bargained provisos like Hungary and China joined on the condition that in special circumstances they maintain the right to reduce the tax below 15 percent.
According to the Organization of Economic Cooperation and Development (OECD), the global minimum tax agreement does not seek to eliminate tax competition but puts multilaterally agreed limitations on it.
The Pillar One of the Statement envisages re-allocation of some taxing rights over multinational enterprises (MNE) from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there. Specifically, MNEs with global sales above EUR 20 billion and profitability above 10 percent will be covered by the new rules, with 25 percent of profit above the 10% threshold to be reallocated to market jurisdictions. This move is expected to re-distribute estimated $125 billion annually to new jurisdictions.
The Pillar Two sets a global minimum corporate tax rate at 15 percent. This will apply to companies with revenue above EUR 750 million and is believed to accumulate an additional $150 billion in global tax revenues annually.
A multilateral convention is planned for 2022 and, meanwhile, the OECD will develop models of how to help nations regarding the adaptation of domestic legislation. The ‘agreement will make our international tax arrangements fairer and work better, stated the Secretary-General of OECD Mathias Cormann, who thinks that this ‘major reform’ it is victory of multilateralism, which ensures that the international tax system ‘is fit for purpose in a digitalized and globalized economy’.
In parallel with OECD efforts and in light of the exposure of illicit assets by the Pandora Papers, the European Parliament has voted for tighter rules on the super-rich who move their wealth offshore, the British Guardian reported. According to the EU Tax Commissioner, Paolo Gentiloni, the European Commission will present by the end of 2021 legislative proposals to tackle tax avoidance and tax evasion.
The European Parliament’s resolution does have a binding power over member states, taxation remains a subject of national competence, but the whole international tax system will become more transparent, argue the supporters of the initiative.
The EU is pushing a common code of conduct on business taxation, in order to avoid any race to the bottom in terms of taxes, among the member states. The group working on the reform of the code of conduct was also behind the introduction of the EU black list of tax havens back in 2017. Currently, there are nine countries were in the list: American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad & Tobago, US Virgin Islands, and Vanuatu. Three countries – Anguilla, Dominica, and Seychelles were removed on October 5.
The EU is interested in toughing controls on ‘golden visa’ and ‘golden passport’ programs as well. The European legislators are pushing governments to impose stricter regulations. Maltese and Cypriot citizenship by investment schemes have been the subject of Brussel’s critique for a long time. Cyprus suspended its ‘golden passport’ program in November 2020, but Malta has just reformed its scheme. Canceling Cyprus’ Investment Program was the only option for authorities after Al Jazeera’s exposure of wrongdoing and corruption in the program. Despite scandals surrounding the Maltese ‘golden passport’ scheme, Malta’s government just closed the program, citing the reach of the cap, and relaunched in a couple of months new citizenship by investment scheme with more tough residency requirements. But both countries keep the ‘golden visa’ schemes, like Greece, Portugal, Spain, and many more in the EU.
Reports from the international press indicate that the global tax system is not going to be the same again. So, is this the end of tax havens? Until 2023, it is not the end, but afterward, it might be, especially, if countries will introduce policies to make taxation more transparent and sign the treaty on minimum global corporate tax.
It is now time to analyze all developments and elaborate a strategically-wise tax strategy. Alternative residency or citizenship programs are good for many reasons, but tax residency also matters. Wealthy people need permanent consultations and advice to secure and diversify their wealth portfolio.
Countries Joining The Statement
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1. Albania 2. Andorra 3. Angola 4. Anguilla 5. Antigua & Barbuda 6. Argentina 7. Armenia 8. Aruba 9. Australia 10. Austria 11. The Bahamas 12. Bahrain 13. Barbados 14. Belarus 15. Belgium 16. Belize 17. Benin 18. Bermuda 19. Bosnia & Herzegovina 20. Botswana 21. Brazil 22. British Virgin Islands 23. Brunei Darussalam 24. Bulgaria 25. Burkina Faso 26. Cabo Verde 27. Cameroon 28. Canada 29. Cayman Islands 30. Chile 31. China 32. Colombia 33. Congo 34. Cook Islands 35. Costa Rica 36. Côte d’Ivoire 37. Croatia 38. Curaçao 39. Czech Republic
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40. Congo 41. Denmark 42. Djibouti 43. Dominica 44. Dominican Republic 45. Egypt 46. Estonia 47. Eswatini 48. Faroe Islands 49. Finland 50. France 51. Gabon 52. Georgia 53. Germany 54. Gibraltar 55. Greece 56. Greenland 57. Grenada 58. Guernsey 59. Haiti 60. Honduras 61. Hong Kong, China 62. Hungary 63. Iceland 64. India 65. Indonesia 66. Ireland 67. Isle of Man 68. Israel 69. Italy 70. Jamaica 71. Japan 72. Jersey 73. Jordan
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74. Kazakhstan 75. Korea 76. Latvia 77. Liberia 78. Liechtenstein 79. Lithuania 80. Luxembourg 81. Macau, China 82. Malaysia 83. Maldives 84. Malta 85. Mauritius 86. Mexico 87. Monaco 88. Mongolia 89. Montenegro 90. Montserrat 91. Morocco 92. Namibia 93. Netherlands 94. New Zealand 95. North Macedonia 96. Norway 97. Oman 98. Panama 99. Papua New Guinea 100. Paraguay 101. Peru 102. Poland 103. Portugal 104. Qatar 105. Romania 106. Russia
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107. Saint Kitts and Nevis 108. Saint Lucia 109. Saint Vincent and the Grenadines 110. Samoa 111. San Marino 112. Saudi Arabia 113. Senegal 114. Serbia 115. Seychelles 116. Sierra Leone 117. Singapore 118. Slovak Republic 119. Slovenia 120. South Africa 121. Spain 122. Sweden 123. Switzerland 124. Thailand 125. Togo 126. Trinidad and Tobago 127. Tunisia 128. Turkey 129. Turks and Caicos Islands 130. Ukraine 131. United Arab Emirates 132. United Kingdom 133. United States 134. Uruguay 135. Viet Nam 136. Zambia |