It would be a breakthrough for more tax justice: a worldwide minimum tax for large corporations. After the finance ministers of the seven big industrialized countries (G7) had already agreed on a specific model, there was no doubt that an agreement among the G20 ministers this Friday and Saturday was no longer possible. Why is this a …
It would be a breakthrough for more tax justice: a worldwide minimum tax for large corporations. After the finance ministers of the seven big industrialized countries (G7) had already agreed on a specific model, there was no doubt that an agreement among the G20 ministers this Friday and Saturday was no longer possible. Why is this a turning point for global corporate taxation? The “Free Press” answers the most important questions.
Why is reform so urgent?
In 1980, before the digital age, the international average tax rates for companies were 45 percent. In 2020 it was only 23.3 percent. In addition, more and more multinational corporations have legally shifted their profits to low-tax countries. Some managed to reduce their tax burden abroad to zero. This distorted competition with companies that only operate in one country and cannot emigrate from a tax point of view.
What is planned now?
There is an agreement between the G7 finance ministers, which the G20 have now also supported. It provides for the introduction of a global minimum tax of 15 percent. The model works like this: If a group pays less than 15 percent tax for a subsidiary abroad, the government of the state in which the company is domiciled can claim the difference. This makes it unattractive to shift profits.
Are all corporations affected?
So far, it is planned to apply this new regulation to all companies with an annual turnover of 750 million euros. According to the Federal Statistical Office, 827 corporations would be affected in Germany. Nevertheless, there is likely to be only comparatively little additional income for the Federal Minister of Finance, as only a few German corporations operate branches in low-tax countries.
Is there also an understanding about the introduction of a digital tax?
That is the second pillar of the package. A new calculation is introduced here. Taxes are then no longer only due in the country where the company is based. In future, taxes will have to be paid in every state in which the corporations do business. For example, Apple or Google would probably have to pay significantly higher taxes in Europe, while Volkswagen in China. However, there are still problems with the digital tax.
Which are they?
The proposed regulation should only be applied to corporations that achieve an annual turnover of 20 billion euros and make ten percent or more profit. In Germany this applies to a maximum of ten groups. The world’s largest online retailer Amazon would be out due to a low profit margin. Here the finance ministers are still working on a solution to make exceptions possible.
Are all the important states involved?
No. If this minimum tax model were to be introduced, the EU would have problems because Estonia, Hungary, Ireland and Cyprus would not follow suit. Their governments do not want to forego lower corporate taxes (Ireland 12.5 percent) and the resulting location advantage. Since unanimity is required on tax issues within the EU, a compromise is now being struggled in Brussels. However, the Group of the European Greens presented a legal opinion on Friday, according to which the introduction of minimum and digital taxes would also be possible without the support of all member states.
How much additional income could Federal Finance Minister Olaf Scholz (SPD) expect?
The OECD assumes around 150 billion euros in additional tax revenue worldwide. There are studies according to which the 27 EU countries could expect an additional 50 billion. The President of the German Institute for Economic Research, Marcel Fratzscher, told the “Augsburger Allgemeine” a few weeks ago: “Germany is one of the biggest winners in global minimum taxation.” The only thing is that there are still no exact figures.
What’s next now?
In Brussels, observers think an introduction in 2023 is conceivable. The prerequisite for this would be an agreement within the next few months. However – at least so far – that is not in sight. (drewesd)