Is the Global Minimum Tax About to Die on the Vine? The proposed agreement would introduce a uniform minimum tax rate on corporate profits. But it was blocked in the United States and the European Union after Poland vetoed an EU deal implement the measure at the end of 2023.
The vote in Poland continues a trend that is beginning to worry supporters of the global minimum tax. Last summer, cracks began to appear when the European Union announced that it would seek a levy of a 0.3% tax on goods and services sold online by all businesses operating in the Union. European market with annual sales of at least 50 million euros ($53.7 million). This would be a huge obstacle to a tax deal, especially since the United States opposed the proposal on the grounds that the tax would specifically target large American e-commerce companies.
Meanwhile, outside the G20, countries with tax rates below the proposed global level – such as Ireland (12.5%) and Switzerland (8.5%) – have consistently come out in favor of s oppose the initiative. And in developing countries, especially African countries where the economy relies almost entirely on the presence of foreign multinationals, the idea of losing their privileged tax status is not appealing.
Not to be discouraged, Treasury Secretary Janet Yellen insists that the United States is committed to seeing this effort through. In fact, she went so far say she believes Congress could still approve elements of the deal and expects the EU to approve the minimum tax plan this spring. But the global tax also faces challenges on the home front, including a landscape cluttered with domestic issues — from student debt cancellation to falling GDP growth to impending court action. supreme over Roe v. Wade. Does the White House have the political capital to make this happen on the Hill?
The never-ending global tax saga seems to have caught CFOs and corporate tax teams in a cycle of uncertainty. Whether preparing to consider specific exclusions for industries – such as those the UK is seeking for its financial services sector – or running through several forecast scenarios to identify the most logical path, the constant state of flux has instilled a sense of “hurry up and wait” in many multinational tax departments.
There are companies that try to be proactive. Many multinationals realized they had limited bandwidth to accommodate the kind of sweeping structural changes that would be required by the new regulations. They plan to make huge organizational changes to ensure they will be ready to stay compliant.
Is it really worth changing everything from staffing to altering supply chains just in anticipation of a deal that still faces significant hurdles ahead of ratification?
“Companies are beginning to realize that their existing global structures, supply chains and operating models might not be the most efficient structures and models in a position. [global minimum tax] world,” Jason Yen, head of EY’s international tax and transactional services group and former U.S. delegate to the OECD, says CFO Dive. “It comes as a bit of a surprise and it’s not an easy thing to deal with.”
Of course, therein lies the catch. Is it really worth changing everything from staffing to altering supply chains just in anticipation of a deal that still faces significant hurdles ahead of ratification? The most relevant question: can multinationals afford to roll the dice?
For corporate finance professionals, this is almost a moot point, as volatility exists both ways. A tax strategy for multinational corporations is an extremely complicated undertaking, taking into account a host of variables, including the demands of global trade, location of customers, location of talent and corporate tax rates in a elaborate balance exercise. Do corporate tax rates matter? Yes, absolutely, but it is important to remember that they are part of a much larger strategic mix, which will not change overnight.
Vigilance is the key. While this new law remains pending, multinationals must redouble their efforts in scenario planning and develop action plans for each of their options. Provided a CFO is committed to the regulatory landscape, aware that they may need to pivot at a moment’s notice, and have the structure in place for organizational agility, their business should be fine regardless of whether a global minimum tax materializes or not.
Brian Peccarelli is co-chief operating officer of Thomson Reuters.