OECD Release Updated Assessment of Impact of Global Minimum Tax    

The OECD held a webinar last week to provide an update on its economic impact assessment of the Global Minimum Tax (GMT) from the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy. Two working papers were released during the webinar, namely, the The Global Minimum Tax and the taxation of MNE profit and the Effective tax rates of MNEs: New evidence on global low-taxed profit. presentation was given during the webinar setting out the key results of the impact assessment and working papers, predicting that countries which are dubbed as “investment hubs”, generally low tax jurisdictions, will see the largest increases in corporate tax revenues. The countries include Bermuda, the British Virgin Islands, Ireland, Jersey, Guernsey, Luxembourg, Netherlands, Switzerland and Singapore.

Other key conclusions include:

  • The GMT will reduce global low-taxed profit by about 80%; from 36% of all profit globally to about 7%. This reduction stems from both the reduction in profit shifting and the application of top-up taxes.
  • The remaining low tax profit mainly reflects the impact of the substance-based income exclusion. This reduction is present in all income groups, but largely concentrated in investment hubs. Remaining low-taxed profit is largely due to the presence of the substance-based income exclusion (SBIE), where the GMT takes account of the real economic activities of MNEs.
  • Under the GMT, shifted profit is estimated to fall by half due to strongly reduced profit shifting incentives.
  • Differences in taxation between jurisdictions are estimated to fall, which will likely increase the importance of non-tax factors in influencing investment decisions and improving the allocation of capital globally.
  • Global corporate income tax (CIT) revenues are estimated to increase as a result of the application of top-up taxes and reduced profit shifting. The GMT is estimated to raise additional CIT revenues of USD 155-192 billion globally each year or between 6.5% and 8.1% of global CIT revenues with one third of these gains coming from reduced profit shifting.

Speaking with the Financial Times, Manal Corwin, Director of the OECD Centre for Tax Policy and Administration, said that it would be key to watch how businesses react, but that decisions to set up structures would become less likely due to cost and incentive being reduced by the global minimum tax. 

Tax Priorities of the Belgian Presidency of the Council of EU

Belgium now holds the Presidency of the Council of the EU until 30 June 2024, and recently published its Programme and Priorities for its Presidency. 

Concerning economic and financial affairs, and its tax priorities, the Programme sets out that Belgium intends to prioritise work on “narrowing the VAT gap, on EU own resources, on completing the mid-term review of the Multiannual Financial Framework (MFF), and on revising legislation related to the Customs Code as well as taxation rules for cross-border teleworking”, noting that introducing new priorities was not within the scope of its mandate, as the “Belgian Presidency will straddle the close of one European parliamentary term and the start of another, it will work to finalise major outstanding files while also stimulating discussion on the economic state of the Union and its future”.

The priorities also indicate that proposals concerning simplification and competitiveness, particularly for SMEs, will be a priority, such as the HOT proposal, stating that as “European competitiveness faces increasing pressure, the EU’s response must create a level playing field for businesses, especially SMEs, enabling them to compete fairly both within Europe and on the global stage”. 

EU Commission Publishes FAQs on EU Minimum Tax Directive

The European Commission published a document in late December setting out a range of non-binding FAQs concerning interpretation of the EU Minimum Tax Directive, reflecting discussions held with the Commission and Member States on transposition and implementation of the Directive. Notably, the FAQs confirm the Commentary to the OECD Model Rules could be relied on for matters concerning interpretation and consistency in approach between the Member States. 

The FAQs cover issues concerning: IIR and UTPR, computation of qualifying loss or income, computation of adjusted cover taxes, computation of the ETR and top-up tax, special rules for corporate restructuring and holding entities, tax neutrality and distribution regimes, administrative provisions and transition rules.

Next Meeting of the FISC European Parliament Subcommittee 

The next meeting of the FISC Subcommittee will take place on 23 January 2024, from 15:00 to 16:30, in the form of a public hearing on the topic of “Capital Gains Taxation in the EU”. The Subcommittee will host an exchange of views with: Mr Sean Bray, Director of European Policy at the Tax Foundation; Ms Chiara Putaturo, Deputy Head of Oxfam’s EU Office and EU Inequality and Tax Policy Advisor; and, Ms Sarah Perret, Head of the Personal and Property Taxes Unit, Tax Policy and Statistics Division of the OECD’s Centre for tax Policy and Administration.

The exchange of views will cover capital gains taxation across EU Member States and whether free movement of capital poses a potential risk for aggressive tax planning and evasion. The FISC will thereafter review possible recommendations it can make on potential measures that can be taken at EU level to address these risks, such as deeming certain capital tax regimes as harmful within the scope of the Code of Conduct Group on Business Taxation or expanding the scope of automatic exchange of information to include capital gains on immovable property and financial assets.

The Subcommittee also recently published a calendar of meetings for 2024, currently containing dates for Q1 meetings in 2024. Further information on the topics will be made available in due course.

CFE’s 2023 Tax Policy Report

The CFE Tax Advisers Europe has published its 2023 Tax Policy Report. The Tax Policy Report is an annual publication which provides a detailed analysis of significant primary law and tax policy developments at both EU and international level that have occurred over the course of the year which would be of interest to tax advisers. It also includes an overview of selected CJEU case-law and relevant European Commission decisions.

We invite you to read the Tax Policy Report, and remain available for any questions or comments that you may have.

The selection of the remitted material has been prepared by:
Aleksandar Ivanovski & Brodie McIntosh