William D. King – The Latest Global Tax Agreement To Follow

By  //  November 26, 2021

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In recent times, countries have been seriously debating about the changes to international tax rules, which are applied to multinational companies. Starting from the July announcement by countries, which have been involved in the negotiations at Organization for Economic Co-Operation and Development, there has been an agreement made on outline of latest tax rules.

If it gets implemented fully, the larger US firms will pay less to the US government and more to the overseas government. Then the foreign earnings of companies might face higher taxes. Get the opportunity to learn more about that from William D King.

William D King talks about the large companies:

The larger companies, right now, have to pay higher taxes in countries where they have maximum customers. They need to spend less in those countries where the employees, headquarters and operations are located.

■ On the other hand, the agreement will set up adoption of a global minimum tax of around 15%, which can increase taxes on companies with earning within the lower tax jurisdictions.

■ There are around 140 countries included I this negotiation deal. Among the lot, 136 signed to new outline. Some of the holdouts over here were Pakistan, Kenya, Nigeria and Sri Lanka.

■ Estonia, Ireland and Hungary recently gave their noted approval after staying out of the agreement in July.

The value of the proposal:

The proposal follows one generic outline, which were under discussion since 2019. There were two pillars of the said reform. The pillar 1 focuses on the changed where the larger companies pay taxes. The pillar 2 deals with the global minimum taxes. Both these pillars will include various elements.

■ Pillar 1 will have Amount A, which will then be applied to firms with over €20 billion in their revenue and with a profit margin of 10% +. 

■ For such companies, one portion of the profit will be taxed right under jurisdictions, where they are likely to have sales.

■ Then they will have 25% of profits above 10% margin, which might be taxed.

■ After the current review period of around 7 years, the €20 billion will fall to the €10 billion section.

Companies, which are associated with the extractives sectors like gas, oil and mining, and the financial servicing firms will be excluded from the said policy.

The Amount A is going to be the partial redistribution of the current tax revenue from countries, which have currently tax the larger MNCs based on headquarter location. It is also based on the countries, where these firms have the highest sales. The US firms are going to have a large share of the companies in association with the policy.

There will be some potential for the USA to lose some of the tax revenue, depending on the said approach. But, the U.S. Treasury Secretary has stated that the amount A will be the rough revenue neutral for the USA. To make this true, the US might have to collect some major revenue from foreign companies or the USA firms, which will sell to US customers from their foreign offices.