The top economic powers (G20) agreed on a reform of the international tax system as early as the summer. But not all members of the EU are enthusiastic. Ireland in particular insisted on its tax model.
After the previous low-tax country Ireland gave in, an important hurdle for a global corporate tax reform was cleared this year.
The Organization for Economic Cooperation and Development (OECD) wanted to end the technical talks at a meeting in Paris on Friday, as the “Financial Times” reported. Ireland had previously bowed to international pressure – and Estonia was another EU country. The cabinet in Dublin decided on Thursday evening to increase the tax rate for companies with a turnover of more than 750 million euros from 12.5 to 15 percent.
Ireland, where large digital corporations have their European headquarters, is thus contributing to the targeted global tax reform and avoiding further disputes with the G20 group of top economic powers. So far, Dublin has always defended its low tax policy, which is an important business model. However, the pressure increased after the finance ministers of the leading industrialized and emerging countries (G20) agreed in the summer on a reform of the international tax rules in the digital age.
In July, the G20 finance ministers decided on two innovations: Internationally active companies should pay “at least” 15 percent tax regardless of their location. If a company with its subsidiary pays less taxes abroad, the home country can collect the difference. This is to prevent profits from being shifted to tax havens. In addition, large companies should no longer only be taxed in their mother country, but also where they do good business.
Dublin’s commitment was brokered by the OECD. Irish Finance Minister Paschal Donohoe said it was a far-reaching reform of the global tax framework. «It is the right decision. It’s a sensitive and pragmatic decision. ” Deputy Prime Minister Leo Varadkar told RTÉ that the government had been assured that it was a step that would occur “once in a generation” and that the tax rate would not rise any further. Varadkar emphasized that the corporate tax was “exactly” 15 percent and not – as initially requested – “at least” 15 percent. The government then concluded that it was better for Ireland to participate.
In the EU country, dozens of companies with hundreds of thousands of employees are affected by the change, which is expected to come into force in 2023. The government in Dublin estimates its loss due to the tax increase at 800 million to 2 billion euros per year. In addition to Ireland, Estonia and Hungary from the EU had so far resisted the reform.
As the Estonian Prime Minister Kaja Kallas announced on Thursday evening, the Baltic country is now also giving up its resistance. “We have held intensive negotiations all summer to achieve a situation in which Estonian entrepreneurs are affected as little as possible by this global tax,” said Kallas. The minimum tax will not change anything for most Estonian companies and will only affect subsidiaries of large multinational corporations. By participating in the tax reform, Estonia has the opportunity to work towards ensuring that “the business environment and tax policy of Estonia continue to function in the interests of a better future for all of us”.
In a conversation with her Estonian counterpart Keit Pentus-Rosimannus on Wednesday, US Treasury Secretary Janet Yellen once again insisted on reforming the global tax system. A consensus on the global minimum tax has “top priority,” said Yellen.
The industrialized countries organization OECD has calculated that the minimum tax alone will result in additional tax revenues of 150 billion dollars (about 130 billion euros) worldwide. The redistribution could bring the so-called market states again more than 100 billion dollars. There is no reliable information on the effects on the tax authorities in Germany. Almost all OECD countries had already given their approval at working level, including well-known tax havens such as the Cayman Islands.
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
