ANALYSIS - Global Community May Struggle To Reach Final Consensus On Corporate Tax Agreement

MOSCOW (Pakistan Point News / Sputnik - 16th April, 2021) Even though most members of the Organisation for Economic Co-operation and Development (OECD) have so far supported the US idea to introduce a global minimum corporate tax rate, they may find it difficult to reach a final consensus, analysts told Sputnik.

The OECD has been running talks on the international taxation for years, but the negotiations accelerated after the administration of US President Joe Biden had rolled out a proposal calling for a global minimum tax rate of 21 percent. Washington also proposed to obligate the largest multinational corporations to pay taxes in the country where they make profit and not only where their digital or other sales are being managed.

The taxes, if introduced, may affect the economies of Ireland, the Netherlands, Luxembourg and Cyprus, among others. These countries have proved to a popular location for the headquarters of multinational corporations, lured in by a favorable tax regime.


The idea of the global tax agreement, as it was initiated by the United States, at the current stage seems one-sided, John Clay Taylor, a partner specializing in taxes with the US corporate law firm King and Spalding, told Sputnik.

"My biggest concern about something like that is typically the way the US has approached this both the Democratic and the Republican administrations as the US says: "Here is what I want to do, all the rest of you can agree to it'," Taylor said.

One of the most important aspects that the group of countries have to agree on is the distribution of benefits from higher taxes, which may prove to be a stumbling block during the talks, according to the expert.

"If you don't have agreement on who gets the benefit of that higher tax, which is one of the big issues that everybody always asks. If you are operating in multiple jurisdictions, like a lot of US companies do Apple, Amazon, Starbucks does the local country get the tax or the home country get the tax? That is going to be a hard one to see people getting comfortable with. Even if you agree on a rate, more important thing is who gets the benefit of that?" Taylor underlined.

Helen Garforth, a paralegal with the London-based litigation firm Candey, believes that the countries with low corporate taxes will ultimately oppose the plans.

"The big players in the G20 - Germany, France, UK, China, Russia, not to mention the U.S. itself - serve to benefit from the introduction of a global minimum corporate tax. It is more likely that the smaller to medium-sized countries with lower corporation tax rates, such as the Republic of Ireland and Luxembourg, would be the main countries to oppose the proposal. This really is a one-off opportunity for big global players to increase their national revenue. It is difficult to see how the big countries would pass up the opportunity, and encourage others to agree," Garforth told Sputnik.

But one of the biggest challenges that the global taxation agreement faces is the outdated tax system across the globe, some of which have been conceived over a century ago, the King and Spalding partner underlined.

"If they really want to do something about global taxation, and try and make it fit for a purpose, you almost need to scrap the whole system and start over and that's a big ask, because if one or two big country go along, you end up with mismatches, which will be exploited and that is essentially your concern. If you are a really a big company, you can do things all over the world, and make things to your advantage. That's is one of the big problems and even with the OECD project, which is a great idea, but when you try to implement some, it's the classic dilemma when everybody follows the same set of rules, but you still are going to end up with another set of problems," Taylor said.

As the big corporations still may find loopholes in the new legislation and come up with new ways to avoid taxation, the experts differ on whether the global agreement will prove effective.

"Countries such as the UK, France, Spain and Italy have already launched unilateral digital service taxes, which implies that such a tax could be viable globally, although it is certain to face opposition not only from digital giants but from multi-nationals. The tax certainly faces hurdles, such as passing through the U.S. Congress for a start, but other national digital service taxes have proven that it is a viable concept," Garforth, the paralegal with Candey, said.

The King and Spalding's partner is less positive in his expectations on viability of the potential global corporate tax.

"Do I believe there will be something? Yes. Will it ultimately be effective? Maybe not. Will it tighten things up? Probably but it is just too difficult of a problem with too many stakeholders to easily resolve," Taylor concluded.