Proposal to introduce a global minimum corporate tax of 15% approved by 132 countries

On Saturday 10 July 2021, the G20 announced that they have achieved a historic agreement on a more stable and fairer international tax architecture. The G20 announced that they endorse the key components of the two pillars on the reallocation of profits of multinational enterprises and an effective global minimum tax as set out in the “Statement on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy” released by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) on 1 July 2021. The statement released on 1 July can be accessed here, whilst the statement released by the G20 in respect of the agreement reached on 10 July can be accessed here.

The new tax system, which is expected to take effect in 2023, has been agreed to by 132 countries and sets an effective global minimum tax of 15% on multinationals with more than EUR 750 million in revenue. The list of 132 includes South Africa and can be accessed here.

Given that the international shipping industry is subject to special tax rules, such as tonnage taxes, it is understood that the shipping industry would be exempted from the new rules (i.e. the threshold and minimum tax rules would not apply to the international shipping industry).

The OECD has noted that a global minimum corporate income tax of at least 15% could result in around USD 150 billion in additional global tax revenues annually. 

The president of the United States in turn noted that "with a global minimum tax in place, multinational corporations will no longer be able to pit countries against one another in a bid to push tax rates down." He highlighted that "they will no longer be able to avoid paying their fair share by hiding profits generated in the United States, or any other country, in lower-tax jurisdictions.”

It is understood that in terms of the proposal the minimum corporate tax would not require countries to set their corporate tax rates at the minimum of 15% or above, but rather provide countries with the right to apply a top-up levy to income coming from a country with a tax rate lower than the minimum of 15%. A statement made by the countries backing the agreement noted that the technical details are to be agreed on by October of 2021, in order for the new rules to be implemented by 2023.

There is however still a long way to go before such a new system, and the minimum corporate tax rate of 15%, would be fully implemented, as the relevant legislation would still have to be agreed on and passed by the participating countries.

16/07/2021