The OECD is asking for input on a global minimum tax proposal, a key element in its effort to rewrite international tax rules by the end of 2020.
The organization on Nov. 8 asked for comments on the latest version of the proposal, which would create a set of rules aimed at ensuring that companies pay a minimum rate somewhere, even if they are operating in low-tax jurisdictions.
The proposal is part of the Organization for Economic Cooperation and Development’s effort to address concerns that multinational companies—particularly tech giants—aren’t paying enough tax in some countries where they have a large user base. The OECD released details Oct. 9 on a second portion of the plan that would that would shift a portion of some multinationals’ profits to the market countries where their customers are located.
The OECD is trying to find agreement among more than 130 countries. A global deal could deter countries like France and Italy from unilaterally taxing the revenue of tech giants like Facebook Inc. and Alphabet Inc.'s Google.
The OECD asked for feedback on a few key questions, including whether a multinational’s effective tax rate should be calculated by “blending” the rates it pays across jurisdictions or by looking at the rate it pays in each jurisdiction. The organization also is looking for comments that address whether information multinationals report on financial statements could be used to calculate obligations under the minimum tax rules and if the rules should include carve-outs or thresholds that would exempt certain companies.
Anti-Base Erosion Rules
The document also includes details on four components of the new rules that would create an effective minimum tax rate and prevent base erosion. The minimum rate these rules would operate under has not been set.
- An “income inclusion rule” would tax the income of a foreign branch or a controlled entity if that income was subject to tax at an effective rate that is below a minimum rate.
- An “undertaxed payment rule” would deny a deduction or impose a tax, such as a withholding tax, where an intra-group payment is made, if that payment is not subject to tax at or above a minimum rate.
- A “switch-over rule” in tax treaties would allow home jurisdictions to switch to a credit method from an exemption method where profits attributable to a source jurisdiction are taxed below the minimum rate. If a tax treaty requires an exemption method, a company that has an entity that is resident in a tax-treaty jurisdiction then the home jurisdiction must exempt this entity from tax. However, under the credit method a company is subject to tax but it is awarded credits for any tax paid in a tax-treaty jurisdiction. The company can use these credits to offset any tax paid in the home jurisdiction.
- A “subject to tax rule” would subject certain tax treaty benefits to withholding taxes if the treaty provisions would lead to a payment being subject to tax below the minimum rate.
Public comments on the minimum tax proposal are due Dec. 2. A public consultation will be held Dec. 9.