European Commission President, Ursula von der Leyen
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OECD: 130 Countries Representing 90% of Global GDP Agree to 15% Corporate Tax Rate

2nd July 2021 | Hong Kong

130 countries and jurisdictions representing 90% of global GDP have agreed to both 15% minimum corporate tax rate and large multi-national enterprises to pay tax where they operate and earn profits.  The new 2-pillar plan will reform international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate, will be finalised in October 2021 and be implemented in 2023.  A small group of 139 members including Ireland and Hungary have not joined the framework.

“ 130 Countries Representing 90% of Global GDP Agree to 15% Corporate Tax Rate “

 



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OECD – Update to International Tax System

President Of European Commission Ursula Von Der Leyen 2
European Commission President, Ursula von der Leyen

The Organisation for Economic Co-operation and Development (OECD) is leading the talks overhaul of the global tax system to ensure ensure big companies “pay a fair share” wherever they operate.  The framework updates key elements of the century-old international tax system, which is no longer fit for purpose in a globalised and digitalised 21st century economy.

Both Ireland and Hungary – countries with low corporate taxes – had not joined the deal on the global minimum tax rate of 15%.

View:

 

OECD Secretary-General Mathias Cormann:

“After years of intense work and negotiations, this historic package will ensure that large multinational companies pay their fair share of tax everywhere.

This package does not eliminate tax competition, as it should not, but it does set multilaterally agreed limitations on it. It also accommodates the various interests across the negotiating table, including those of small economies and developing jurisdictions. It is in everyone’s interest that we reach a final agreement among all Inclusive Framework Members as scheduled later this year.”

 

Countries with Lower Tax Rate

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Countries that have lower tax rates such as Ireland (12.5%), Hong Kong (16.5%), Singapore (17%), Switzerland (21.1%) can attract more foreign & international companies to setup headquarters compared to countries with higher tax rates such as United States (25.8%), Canada (26.5%), Japan (29.7%), Germany (29.9%) and France (32%), and with some countries providing further concessionary tax rates (reduced tax rates) to attract targeted sectors such as in the technology sector (Eg. Apple, Amazon, Google, Facebook).  The lower tax rates or concessionary tax rates  have allowed companies and big companies to save billions in taxes by shifting jurisdiction (headquarters).

Tax avoidance, tax structuring has been a big issue for many governments, including companies and wealthy individuals setting up offshore companies in tax havens such as British Virgin Islands (BVI), Cayman Islands and Bermuda, that have 0% tax.

 

Selected Global Tax Rates (Low to High):
  • Cayman Islands – 0%
  • British Virgin Islands – 0%
  • Bermuda – 0%
  • Ireland – 12.5%
  • Hong Kong – 16.5%
  • Singapore – 17%
  • Thailand – 20%
  • Vietnam – 20%
  • Taiwan – 20%
  • Switzerland – 21.1%
  • Indonesia – 22%
  • India – 22% 
  • China – 25%
  • Korea – 25%
  • Malaysia – 25%
  • Philippines – 25%
  • Australia – 25%
  • United States – 25.8%
  • Canada – 26.5%
  • New Zealand – 28%
  • Japan – 29.7%
  • Germany – 29.9%
  • France – 32%

 

Tax:

 


The Full Statement by OECD

130 countries and jurisdictions have joined a new two-pillar plan to reform international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate.

130 countries and jurisdictions, representing more than 90% of global GDP, joined the Statement establishing a new framework for international tax reform. A small group of the Inclusive Framework’s 139 members have not yet joined the Statement at this time.  The remaining elements of the framework, including the implementation plan, will be finalised in October.

The framework updates key elements of the century-old international tax system, which is no longer fit for purpose in a globalised and digitalised 21st century economy.

The two-pillar package – the outcome of negotiations coordinated by the OECD for much of the last decade – aims to ensure that large Multinational Enterprises (MNEs) pay tax where they operate and earn profits, while adding much-needed certainty and stability to the international tax system.

Pillar One will ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies. It would re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there.

Pillar Two seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases.

The two-pillar package will provide much-needed support to governments needing to raise necessary revenues to repair their budgets and their balance sheets while investing in essential public services, infrastructure and the measures necessary to help optimise the strength and the quality of the post-COVID recovery.

Under Pillar One, taxing rights on more than USD 100 billion of profit are expected to be reallocated to market jurisdictions each year.

The global minimum corporate income tax under Pillar Two – with a minimum rate of at least 15% – is estimated to generate around USD 150 billion in additional global tax revenues annually. Additional benefits will also arise from the stabilisation of the international tax system and the increased tax certainty for taxpayers and tax administrations.

Participants in the negotiation have set an ambitious timeline for conclusion of the negotiations. This includes an October 2021 deadline for finalising the remaining technical work on the two-pillar approach, as well as a plan for effective implementation in 2023.

Working with over 100 countries, the OECD is a global policy forum that promotes policies to preserve individual liberty and improve the economic and social well-being of people around the world.

 



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