Unpacking the G7 fin ministers' agreement
Chantell Husselmann – The finance ministers and central bank governors of the Group of Seven (G7) countries - Canada, France, Germany, Italy, Japan, United Kingdom and United States – met on 5 June.
Following the meeting, a communique announced that the G7 commit to reaching an equitable solution on the allocation of taxing rights (Pillar One), with market countries (where the goods are sold) to be awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises. The G7 said it was also committed to a global minimum tax of at least 15% on a country-by-country basis (Pillar Two).
Although the G7 communique has no formal power to fashion an agreement that is binding on other countries, like the G20 mandated group or the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) global group, one should take note that the G7 represents the largest world economies, and any actions taken often have significant effects on global tax policies, indirectly therefore also Namibia.
Namibia is not a member of the Organisation for Economic Co-operation and Development (OECD), but is a member of the OECD/G20 Inclusive Framework on BEPS.
BEPS
BEPS refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax.
Developing countries’ higher reliance on corporate income means they suffer from BEPS disproportionately. It is estimated that BEPS practices cost countries US$100 to US$240 billion in lost revenue annually.
Many observers are positive that consensus seems possible this year in the G20 and 139 countries of the OECD Inclusive Framework group as a result of the above G7 deal.
IMPLICATIONS
Tax can seldom be isolated from other instruments of government policy nor its effects from other aspects of taxpayers’ behaviour and circumstances.
The complexity of the project being considered by the 139 countries of the OECD Inclusive Framework, touched on by the G7 deal, would mean tax compliance would require most multinationals to configure their data in different ways and change integrated management IT systems to account for tax accurately.
CONCLUSION
The decisions on Pillar One and Pillar Two mentioned above is expected to be on the agenda’s of the OECD Inclusive Framework meetings scheduled at the end of June 2021 and the next G20 Finance Ministers meeting on 9-10 July 2021 in Vienna.
Numerous political and technical elements of disagreement among the G20 and OECD Inclusive Framework countries will have to be bridged for real consensus to emerge on the decisions by the G7.
Implementation of any new rules emerging from the G7 decisions discussed above will probably take several years and is likely to create additional complexities for globally engaged taxpayers, as any agreed rules will not be implemented in exactly the same manner and with the same effective dates by the affected countries.
Chantell Husselmann is the PwC Namibia’s country senior partner and tax leader. Contact her at [email protected]
Following the meeting, a communique announced that the G7 commit to reaching an equitable solution on the allocation of taxing rights (Pillar One), with market countries (where the goods are sold) to be awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises. The G7 said it was also committed to a global minimum tax of at least 15% on a country-by-country basis (Pillar Two).
Although the G7 communique has no formal power to fashion an agreement that is binding on other countries, like the G20 mandated group or the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) global group, one should take note that the G7 represents the largest world economies, and any actions taken often have significant effects on global tax policies, indirectly therefore also Namibia.
Namibia is not a member of the Organisation for Economic Co-operation and Development (OECD), but is a member of the OECD/G20 Inclusive Framework on BEPS.
BEPS
BEPS refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax.
Developing countries’ higher reliance on corporate income means they suffer from BEPS disproportionately. It is estimated that BEPS practices cost countries US$100 to US$240 billion in lost revenue annually.
Many observers are positive that consensus seems possible this year in the G20 and 139 countries of the OECD Inclusive Framework group as a result of the above G7 deal.
IMPLICATIONS
Tax can seldom be isolated from other instruments of government policy nor its effects from other aspects of taxpayers’ behaviour and circumstances.
The complexity of the project being considered by the 139 countries of the OECD Inclusive Framework, touched on by the G7 deal, would mean tax compliance would require most multinationals to configure their data in different ways and change integrated management IT systems to account for tax accurately.
CONCLUSION
The decisions on Pillar One and Pillar Two mentioned above is expected to be on the agenda’s of the OECD Inclusive Framework meetings scheduled at the end of June 2021 and the next G20 Finance Ministers meeting on 9-10 July 2021 in Vienna.
Numerous political and technical elements of disagreement among the G20 and OECD Inclusive Framework countries will have to be bridged for real consensus to emerge on the decisions by the G7.
Implementation of any new rules emerging from the G7 decisions discussed above will probably take several years and is likely to create additional complexities for globally engaged taxpayers, as any agreed rules will not be implemented in exactly the same manner and with the same effective dates by the affected countries.
Chantell Husselmann is the PwC Namibia’s country senior partner and tax leader. Contact her at [email protected]
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