From 2023, multinational corporations must pay corporate tax at a rate of at least 15%

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From 2023, multinational corporations must pay corporate tax at a rate of at least 15%

12.10.2021 News

The agreement on a single corporate tax rate of at least 15 percent was signed by 136 states, which account for more than 90 percent of world GDP. The agreement is aimed at combating tax evasion by international corporations.

The initiative was also signed by countries that were initially opposed to tax reform, such as Hungary, Ireland and Estonia, which were once convenient hubs for IT giants.

The most important agreement in the field of taxes

136 countries, including Ukraine, which accounts for more than 90 percent of the world economy, have agreed that the global minimum tax rate for large corporations will be at least 15 percent.

This was announced by the Organization for Economic Cooperation and Development (OECD) on October 8, which became the platform for this global initiative.

The idea is that, first, corporations pay taxes in the same country where they made a profit. Secondly, in order to avoid the emergence of “tax havens”, a minimum mandatory threshold for all countries is introduced.

The project, which has been underway for several years, is now called a timely opportunity to provide the state budget with additional revenues to rebuild economies after the corona crisis.

The corporate tax will be applied to companies with revenues of more than 750 million euros. The deal will raise $ 150 billion annually worldwide and redistribute more than $ 125 billion in revenue to the 100 largest international corporations.

In addition, the new tax rules will affect companies with global sales of more than 20 billion euros. If a corporation receives more than a ten percent profit margin, it will be forced to redistribute a 25 percent surplus to the countries where it sells its services and goods.

The deal could deprive tech giants such as Google, Apple, Facebook and other corporations of the opportunity to evade taxes through low-tax jurisdictions.

“The agreement will make our international tax mechanisms fairer and more efficient. This is a great victory for an effective and balanced multilateral approach,” said OECD Secretary General Matthias Corman.

The initiative was also signed by those countries that were initially opposed to tax reform, such as Hungary, Ireland and Estonia. It was possible to reach an agreement with them due to concessions, for example, in Hungary the transition period was extended for ten years. This will allow the country to keep the rate at nine percent temporarily.

The new tax rules should come into force in 2023. The initiative is expected to be finally approved at a meeting of G20 leaders in Rome in late October, followed by changes in national legislation.

In France, the agreement was called “the most important in the field of taxes for a century”, and in Germany, declared “tremendous progress in the field of international corporate taxation.”

“For four years, we have worked for fair taxation of international companies and digital giants,” said French President Emmanuel Macron, calling the introduction of a minimum 15 percent income tax for international companies historic.

The idea of ​​introducing a single minimum tax on multinational corporations came from the United States. The government is not happy that companies are registered in low-tax jurisdictions like Ireland and the British Virgin Islands to pay much less.

As a result, all states had to compete for corporations to pay taxes to them, and as a result, lower rates. A minimum rate of 15 percent should put an end to this – most developed and developing countries have agreed.

At the same time, experts note that the big rich countries, whose citizens consume a lot of electronic services, the money from which used to accumulate in low-tax jurisdictions, will benefit the most from the tax revolution.

In early June, agreements on the introduction of a digital tax were reached by the G7 countries after years of discussion. At the time, British Finance Minister Rishi Sunak called the deal historic and revolutionary.

Many countries have decided not to wait for the end of many years of discussion and have introduced a digital tax themselves. It already operates in France, Spain, Italy, Great Britain, Austria, and Turkey.

On June 28, President of Ukraine Volodymyr Zelensky signed a law according to which foreign global technology giants such as Apple, Google, Microsoft, Netflix and others will pay 20 percent VAT (value added tax) in Ukraine.

Under the new law, foreign companies supplying electronic services to Ukraine will be required to register as VAT payers under a simplified procedure through a special electronic service if the total amount from the relevant transactions exceeds one million hryvnias per year.

 

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