Dive Brief:
- The European Union (EU), which has been moving toward getting its members to agree to implement rules for the 15% global minimum tax plan that is at the center of the Organization for Economic Cooperation and Development’s (OECD) so-callled Pillar 2 plan, will take up the issue again next week at an Economic and Financial Affairs Council (Ecofin) meeting.
- With 26 out of 27 EU countries effectively on board as of April to put the rules in place on a delayed time table, all eyes are on Poland, which is the last country needed to support a directive for moving forward, according to Grant Wardell-Johnson, global tax policy leader with KPMG International.
- “If Poland agreed and the EU introduced a Pillar 2 directive, the arguments for the U.S. implementation of Pillar 2...would be stronger and thus more likely to pass given that it could not be asserted that there was insufficient global ‘agreement’ for Pillar 2,” Wardell-Johnson wrote in an email.
Dive Insight:
Multinational companies are bracing for the impacts from the 15% minimum global corporate tax initiative and the OECD's global reform framework — impacts that could potentially extend well beyond taxes to shape data collection, operating models and even transaction strategies.
The minimum tax is at the center of the so-called Pillar 2 piece of the OECD’s base erosion and profit sharing (BEPS) project. In October, 137 countries reached a multilateral agreement to overhaul global tax rules.
U.S. Treasury Secretary Janet Yellen has been a key supporter of the international framework launched to combat tax avoidance and shut down tax havens. But the issue has lost momentum in the U.S. as the Build Back Better legislation that includes the global minimum tax has stalled in the Senate. Earlier this year the global minimum tax plan drew criticism from 14 Republicans who said in a letter to Yellen that it would undermine U.S. competitiveness.
Last month Yellen traveled to Poland to try to persuade the singular holdout in the EU’s plan to get on board but was not successful in doing so, according to a May 16 Reuters report.
But Wardell-Johnson said it would be wrong to say that support for the global minimum tax is coming apart. In fact, in April about several more EU countries came off the sidelines to support it, which represented a step forward, he said. In addition, he believes it is likely Poland will ultimately sign on although it's unclear whether that will occur this month. If that happens Yellen will have more support for her initiative in the U.S., he said.
“I think it‘s going to come together,” he said. “If one is arguing that this is falling apart I don’t think that’s correct.”
Under the agreement reached at the April Ecofin meeting, two rules for implementing the new system would be delayed 12 months. The so-called income inclusion rule's (IIR) implementation would be moved from 2023 to 2024 and the undertaxed profit rule (UTPR) would be delayed from 2024 to 2025.
Meanwhile, countries with no more than 12 multinational companies that are affected by the rules could opt to defer the adoption for six years. The new tax regime will apply to companies with annual revenue exceeding 750 million euros ($850 million) and generate about $150 billion in additional annual global tax revenue, according to the OECD.
The move comes as financial executives are facing a host of uncertainties and stresses around their tax liabilities.
For instance, tax experts say CFOs should prepare for a renewed push for a range of new or higher corporate taxes from the Biden administration, including the possibility that the headline corporate tax rate could be raised to 28% from 21%.
Separately, in a recent letter to Yellen, CFOs from a range of companies including Coca-Cola and Verizon Communications said foreign tax credit rules that went into effect this year are hurting some companies' bottom lines, according to a report Monday in The Wall Street Journal.
