Just when it appeared that discussions concerning global government agreement on a minimum tax for multinational companies were coming to a head, it looks more likely now that a fully-formed global tax agreement among over 130 jurisdictions will be further delayed.
As The Wall Street Journal (WSJ) reports, a formal agreement on the multilateral deal will take longer than predicted and is now expected to be completed in 2023, with implementation occurring in 2024.
The idea behind collecting more tax from large companies in countries where customer bases exist, but where company employees and operations are not actually located, has been bandied about for about a decade. However, it was only between July and October of 2021 that definite plans and outlines were established.
According to The Tax Foundation, last July’s announcement by countries negotiating details at the Organization for Economic Co-Operation and Development (OECD) prefaced an agreement on an outline for new global tax regulations.
On Nov. 4, 2021, 137 jurisdictions had agreed on the “Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy,” which postulated reforms concerning where corporations pay taxes (“Pillar One”; affecting about $125 billion in profits) and a global minimum tax (“Pillar Two”; raising tax revenues by approximately $150 billion around the world).
However, according to The Guardian, there are many facets to both pillars and “still some difficult discussions underway with relations to the technical aspects” of Pillar One in particular that are delaying the implementation of this “historic” global tax deal on multinationals, per Mathias Cormann, secretary-general of the OECD.
“We deliberately set a very ambitious timeline for implementation to keep the pressure on and we think that has helped keep the momentum going,” said Cormann in a statement. “But I suspect it is probably most likely that we will end up with a practical implementation from 2024 onwards.”
All participating countries will need to approve the two-pillar global minimum tax agreement when it eventually gets finalized next year. In the U.S., bipartisan support will be required to approve President Biden’s backing of the agreement, but with the prospect of a full Republican-controlled (or partially controlled) House of Representatives come this November, it is unlikely that will happen, per the WSJ.
Independently, neither the U.S. nor the EU have established minimum corporate tax legislation. Stateside, some of the particulars related to this global tax agreement are tied to the president’s halted Build Back Better legislation.
In Europe, Hungary has vetoed any implementation of the new tax. In response, the U.S. Treasury announced last week it is looking to discontinue its 40-year-old tax treaty with Hungary over its resistance to a global minimum tax, according to The Washington Post.
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