Out of 140 countries taking part in negotiations lead by the Organisation for Economic Cooperation and Development (OECD), 136 countries have signed the agreement on global minimum tax, leaving Kenya, Nigeria, Pakistan and Sri Lanka out of the deal. With both Facebook and Google having their EU headquarters in Dublin, Ireland was initially opposed, but have agreed to the latest plans for the increase of the minimum corporate tax on Friday 8th October 2021, joining all 38 OECD member countries and the G20 group of the world’s most advanced economies.
In a press release by the Ministry of Finance of the Republic of Cyprus, dated 10th October 2021, the Ministry states that “Cyprus welcomes the agreement reached by the G20 on October 8th 2021, marking the long-term efforts to create fair and healthy competition at global level and to safeguard the tax bases and public revenues of the economies.” Further, “Cyprus is not in a position to take part in the global consultations that take place at this level, since it is not a member of the OECD nor of the Inclusive Framework due to objections of a member country of the Organisation. Therefore Cyprus is not included in the list of member countries of the OECD-Inclusive Framework. Cyprus Ministry of Finance is nevertheless in line with the principles governing the two-pillar plan, as set out in yesterday’s statement issued by the OECD, which will be finalised at the G20 meeting on 13th October 2021. Cyprus authorities are expecting the final outcome of the discussions that will take place at the G20 meeting, which will form the basis for the development of the corresponding European legislative initiatives in 2022. In particular, in relation to the decision to establish a minimum effective global corporate tax rate of 15% in large multinational groups, the Cyprus authorities stresses the importance of maintaining the national fiscal and tax policy, including social and income policy as a national competency, in order to ensure compatibility with EU law and achieve equal and fair treatment.” Source: Press and Information Office of the Republic of Cyprus.
The accord to impose a two-pillar global tax reform will force the world’s biggest companies to pay their corporate tax at a rate of 15%, in the jurisdiction where the profits were earned – a quarter of any profits they make (above the 10% threshold) will be reallocated to the countries where they were earned, and taxed there. The UK Chancellor Rishi Sunak has welcomed the deal, commenting: “We now have a clear path to a fairer tax system, where large global players pay their fair share wherever they do business”.
Under the first pillar* of the reforms, the OECD stated that more than $125B of corporate profits would be reallocated from the home countries of the 100 world’s largest and most profitable multinational technology giants to the markets where they operate.
The second pillar** will set a new minimum tax rate at 15% globally, applicable for large companies with annual revenue of not less than $866M. The OECD said it is expected to collect annually an extra $150B for governments worldwide.
Mathias Cormann, the Secretary-General of the OECD, said the plan was a “major victory” for international cooperation, and added: “It is a far-reaching agreement which ensures our international tax system is fit for purpose in a digitalised and globalised world economy. We must now work swiftly and diligently to ensure the effective implementation of this major reform.” The OECD stated that the countries involved in the deal are aiming to sign a multilateral convention in 2022, with effective implementation of the tax reforms in 2023.
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