Russia’s recent invasion of Ukraine set off a global reaction of sanctions, boycotts, and financial limitations. These reactions are intended to impact Russia on a local and global scale. In addition, there are significant ramifications in the global tax arena with companies leaving Russia, additional reporting being discussed, global minimum tax system and other related items. Uncertainty in the global political landscape often leads to tax changes which impact the entire world. These changes can cause companies to rethink their global effective tax rate.
With that in mind, we will specifically focus on the Organization for Economic Cooperation and Development (“OECD”) initiative for a minimum global tax system. The outcome of negotiations coordinated by the OECD for much of the last decade aims to ensure that large Multinational Enterprises (MNEs) pay tax where they operate and earn profits, while adding much-needed certainty and stability to the international tax system.
As of July 9, 2021, both the G7 and G20, representing the world’s largest economies, endorsed the OECD’s development of an international tax reform framework that includes a global corporate minimum tax establishing a minimum tax rate on multinationals’ overseas income. On Oct. 8, 2021, 136 countries and jurisdictions agreed to the OECD plan. Detailed tax accounting rules have yet to be developed. Because the OECD global corporate minimum tax affects only large multinationals – which are generally public companies – the Biden Administration’s choice of standard “book” income, as reported in official financial reports as a minimum tax base, also might serve well for the OECD tax. The OECD envisions implementation in 2023, however, given the complexity of many countries’ tax system and political interests, this goal seems overly optimistic.
Although this global tax system is aimed at large multi-national public companies, given the complexity of the U.S. tax system, we envision that any adjustments to the current U.S. tax system will trickle down to all U.S. taxpayers in some fashion. We will continue to share updates as these changes unfold.
We appreciate your continued trust in McGuire Sponsel as a technical resource to your firm. If you have any questions about this update or other international tax or global business issues, do not hesitate to reach out to our Global Business Services team.
Jason Rauhe, CPA is a Principal in the firm’s Global Business Services practice and is responsible for assisting clients and adding depth in all areas of the firm’s international tax consulting services including transfer pricing, and the firm’s compliance expertise.
Rauhe previously served as Director of International Tax at a Top 100 CPA Firm, where he was responsible for the firm’s international tax division and major industry alliance networks.