The European Union on 15th December 2022 adopted a plan for a 15% global minimum tax on multinational businesses.
Key points
- The profit of the large multinational and domestic groups or companies with a combined annual turnover of at least €750 million will be taxed at a minimum rate of 15%.
- The new rules will reduce the risk of tax base erosion and profit shifting (BEPS) and ensure that the largest multinational groups pay the agreed global minimum rate of corporate tax.
- The agreement between nearly 140 countries is intended to stop governments racing to cut taxes to lure the world’s richest firms to their territory.
- The plan was drawn up under the guidance of the Organisation for Economic Cooperation and Development (OECD) and already had the backing of the US and several major EU economies.
- The global minimum tax is only one part, known as Pillar Two, of the OECD agreement.
- The first pillar, which provides for the taxation of companies where they make their profits to limit tax evasion, primarily targets digital giants. It requires an international agreement which is not yet finalised.
About Two-Pillar
- On 8 October 2021, almost 140 countries in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) reached a landmark agreement on international tax reform, as well as on a detailed implementation plan.
The reform of international corporate tax rules consists of two pillars:
- Pillar 1 covers the new system of allocating taxing rights over the largest multinationals to jurisdictions where profits are earned. The key element of this pillar will be a multilateral convention.
- Pillar 2 contains rules aimed at reducing the opportunities for base erosion and profit shifting, to ensure that the largest multinational groups of companies pay a minimum rate of corporate tax.
