Update on Global Minimum Tax Delays

In a recent blog, we reported that the proposed global minimum tax agreement hit a snag in Europe that month when EU finance ministers failed to reach required unanimity on the so-called Pillar 2 minimum tax proposals in a draft directive put forth by the European Commission at the end of December, 2021. Only a month later, the international deal that could fundamentally change the way in which the world’s biggest multinational companies pay tax has hit yet another delay. The latest delay will push any such agreement back to 2024 at the earliest and now raises questions as to whether it will ever come to fruition at all.

Mathias Cormann, the secretary-general of the Organisation for Economic Co-operation and Development (OECD), told the World Economic Forum in Davos, Switzerland, that there were “difficult discussions” taking place that meant the deal could not come into force in 2023, as previously hoped. The deal has two parts: Pillar 1 involves the reallocation of some profits from major multinationals such as U.S. tech companies to countries where they made their sales, while Pillar 2 brings in a global minimum corporation tax rate of 15%.

The United States is one of the countries posing a challenge to reaching agreement. The U.S. Congress would need to approve changes to the current 10.5% GILTI rate by raising the rate to 15% and converting it to a country-by-country system. The changes were initially included in U.S. President Joe Biden’s social and climate bill, which stalled in late 2021. Now, prospects for a smaller spending package with these proposed tax changes look even more bleak in light of the pending midterm congressional elections.

These aforementioned “difficult discussions,” coupled with the challenges inherent in passing meaningful tax legislation in the United States, are certain to continue calling into question whether a global minimum tax agreement can ever be achieved.

The McGuire Sponsel Global Business Services team will continue to monitor these developments. If you have any questions about our team or any global business issue, do not hesitate to reach out.