Finance executives at multinational companies are trying to assess the potential implications of a global minimum tax for their businesses, with many of them skeptical whether the plan will come to fruition anytime soon.
The U.S. earlier this month won international support for a global minimum corporate tax, which stipulates that companies based in the 130 participating countries pay a tax rate of at least 15% in the jurisdictions in which they operate. Led by the Organization for Economic Cooperation and Development, those countries want to make it harder for businesses to reduce their tax dues by, for example, shifting their profits and operations to low-tax jurisdictions.
The deal also would allow countries in which a company’s products are consumed to tax 20% of its profits, assuming that it generates a margin of at least 10% on global annual revenue of about $24 billion or more.
The efforts of businesses, especially U.S. technology companies, to reduce their tax obligations have drawn the ire of policy makers around the world, resulting in yearslong negotiations about how to overhaul corporate taxation rules. Companies’ overall tax bills are expected to increase under the minimum tax, depending on their industry, origin and business model.
Changes to global tax regulation not only affect what companies have to pay but also shape the structure of their operations, including where they are based or where they store their intellectual property rights.
At the moment, it isn’t clear if the minimum tax would come in at 15% or more, as countries still need to make a final decision on the rate. The U.S., which introduced its own minimum tax of 10.5% in 2017, said it would accept a global minimum levy of at least 15% for participating OECD countries.
It is also unknown how the new rules would work in each country, as they will have to pass their own legislation to integrate the changes into national law.
National digital-services taxes, which are currently in place in various jurisdictions, present another uncertainty for executives. Many multinationals want to ensure that the OECD deal forces countries to remove their individual levies on revenue from services such as digital advertising. The European Union will delay its proposed digital levy, an EU spokesman said Monday.
Countries also have to agree on the tax base, that is which income or assets will be subject to the minimum tax. For example, some industries might be exempted, allowing some companies to circumvent the new tax. In addition, governments need to figure out how to deal with subsidies that are currently granted to certain companies so that they don’t end up undermining the minimum tax.
In the U.S., one of the biggest roadblocks is the divided Congress, which would need to approve the deal. President Biden has sought to push through his agenda on tax and other issues in a tight window before next year’s midterm elections, which could end Democrats’ control of the House and Senate and make passing the tax deal less likely.
Because of these obstacles, some companies are doubtful the changes will take effect anytime soon. Executives are spending more or less time on their preparations depending how confident they are that a deal will happen, said
vice chair of tax at professional services firm KPMG.
Everest Re Group Ltd.
, a Bermuda-based reinsurance firm, doesn’t expect the global minimum tax will affect its business for at least three years, CFO
said. That is because the government of Bermuda, a tax haven, doesn’t support the minimum tax.
The company, which has offices in the U.S., the U.K. and other countries around the globe, owed $71.2 million in income taxes last year, compared with $89.5 million during the previous year.
Royal Gold Inc.,
which provides financing to mining companies, said the minimum tax would help it compete with rivals, which are mostly Canadian. Companies in Canada can generally pay little or no tax by operating a subsidiary in a low-tax jurisdiction, unlike U.S. firms, which are subject to Gilti, a tax on global intangible low-taxed income that was introduced as part of the 2017 Tax Cuts and Jobs Act. But Royal Gold isn’t sure if Canada will adopt the new framework or grant exemptions to certain businesses, according to Chief Executive
In addition to calculating the potential costs, some companies are trying to educate lawmakers about how the tax provisions could weigh on their business, said
global vice chair for tax at professional-services firm Ernst & Young.
Several executives said the U.S.’s breakthrough in negotiations is a promising step to make sure multinational companies pay their fair share. “The important thing is…that it keeps the competitive playing field fair across the industry,” said
the CFO of Micron Technology Inc., a Boise, Idaho-based memory-chip maker. Micron doesn’t know yet whether its tax duties would go up under the new system, he said. The company’s effective tax rate was 9.4% for the year ended Sept. 3, down from 9.8% the previous year.
Some of the missing details, including the level of the minimum tax rate, are expected to be ironed out in October when G-20 leaders meet in Rome. The rules would then take effect in 2023.
“We’ll just have to wait to see what comes out of this process,” said
the chief executive of financial services firm Burford Capital Ltd., on an earnings call last month.
—Kristin Broughton contributed to this article.
Write to Mark Maurer at [email protected]
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