The G7 announced a framework for a global minimum tax last week. In this episode, Amy Wang Miller, CPA, J.D., senior manager with the AICPA’s Tax Policy & Advocacy team, explains what the framework means, and what the future of a global minimum tax looks like.
What you’ll learn from this episode:
· What exactly the G7 finance ministers agreed to regarding a global minimum tax framework.
· What political hurdles remain for a global minimum tax.
· How accountants and finance professionals should be preparing for a global minimum tax.
Drew Adamek:
Hi, I am senior editor Drew Adamek, and this week we’ll be exploring what the G7’s announced framework for a global minimum corporate tax means for accounting and finance professionals.
On June 5, finance leaders from the G7 Group of Nations agreed to a framework for a global corporate minimum tax of at least 15%.
The agreement was years in the making and is especially focused on tech giants like Google, Facebook, and Amazon. While the deal could significantly alter how and where global companies do business, many hurdles remain for the deal. To help understand what the deal means and what’s next, I spoke to Amy Miller, a CPA and senior manager with the AICPA’s Tax Policy & Advocacy team.
What exactly has the G7 announced, and what does that practically mean for organizations? How significant is this announcement?
Amy Miller:
The announcement is significant, I'm going to try to be brief, but basically finance leaders from the world’s 20 largest economies met to discuss plans for global minimum corporate tax rates, and also new rules for how to tax large tech firms like Facebook and Apple. And why that’s significant is because the OECD has been discussing for a few years now about how to tax these tech companies differently. So it’s a shift from taxing physical presence to taxing where the economic presence is.
What happened is that the pandemic has really caused tax revenue needs in the trillions of dollars or pounds or euros. Now, there is an urgency for unilateral approaches from many countries on how to deal with whether it’s a global minimum tax, a digital service tax (DST) and how to tax these large companies, because they really need that revenue to come back from the pandemic. And a lot of countries believe that tech companies disproportionately came out on top through the pandemic with significant revenues. This agreement is kind of a move towards figuring out where will those revenues go and how will countries allocate that appropriately.
Adamek:
A lot of the press coverage immediately after this announcement painted it as a way of dealing with corporate tax avoidance. How do you see this fitting in with other recent international efforts to curb tax avoidance?
Miller:
That’s a great question. I don't know if it was tax avoidance. We never had a system that truly understood how to tax these digital services, this is all new. How do we tax digital companies? I think where it’s kind of like catching up to the new times. And of course, the U.S. wanted to raise this minimum tax to 21% because that’s our current corporate tax rate, and we want our U.S.-based corporations to be competitive in the whole international tax regime and other countries obviously want it to be lower, because in Europe right now the corporate tax rate is much lower. So it’s a competition between countries of just how to come to this difficult agreement.
Adamek:
In trying to address tax avoidance — that’s sort of the base problem that this is hoping to address, as I understand it — but does this create loopholes? Are there any apparent loopholes, if a country decides not to abide by this agreement?
Miller:
Yes, often in tax, especially in new tax rules, there will always be loopholes, right? That’s the job of the tax attorney or a CPA is to find those spaces in between the laws where you can still help your clients protect their revenue. Things that may be disagreements within countries that we are kind of wary of is that, while the OECD has been holding discussions and meetings and a lot of countries are trying to come together to come to an agreement, Congress in the U.S. is really worried other countries won’t agree to withdraw their existing plans, or existing regimes after the OECD strikes the final deal.
I think half of the countries in Europe have existing digital service taxes that are being implemented. And in order for these new rules for global minimum tax to be effective and to work, they have to withdraw the existing digital service tax rules that are currently in play, and Congress wants to see binding commitments from those foreign countries before they move forward.
And even with commitments that those foreign countries are going to withdraw their unilateral DSTs, will there be a bipartisan agreement in U.S. Congress to pass these new rules and to pass this minimum tax? We’re just not sure.
Adamek:
What are the next steps for a global minimum tax?
Miller:
While the G7 discusses the agreement, it is clear that there are still many substantive points that remain subject to further negotiation between the world’s finance leaders. The OECD is going to need to focus their efforts on significant design and implementation considerations for their framework because those details are critical to ensuring a functional and lasting agreement internationally.
Adamek:
Thank you so much for joining us.
Miller:
Thank you so much for having me.
