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Cyprus could block the adoption of a corporate minimum tax plan by the EU | Taxes and expenses

Cyprus could veto the EU’s adoption of Joe Biden’s proposal for a global minimum corporate tax rate, the country’s finance minister suggested.

A White House proposal for a 15% tax rate for multinationals applied to profits in all jurisdictions is expected to be endorsed in principle by the finance ministers of the world’s seven largest economies, the G7, in a next meeting in Cornwall.

The intention is to prevent multinationals from transferring their profits across borders to exploit the most attractive places with low taxes.

Under the proposal, if companies seek to register their profits in a low-tax jurisdiction, the country in which the multinational is headquartered would impose additional taxes to ensure that the global minimum rate continues to apply.

Questions and answers

How would a global minimum corporate tax work and why is it necessary?


Multinationals take advantage of gaps and imbalances in the international tax system through a technique known as “profit transfer”. This implies the artificial allocation of derived sales from one country to a country with lower taxes. One of the ways this is achieved is by setting up a subsidiary in a tax haven and registering your intellectual property there. Then that entity charges the company’s subsidiaries in other higher tax jurisdictions with higher royalty fees. By charging that “cost” to the market where the majority of income is made, profits can be reduced or eliminated, which means no taxes are paid. Royalty fees extracted in this way are recorded as earnings at the low-tax location. Profits are often transferred to countries like the British Virgin Islands or Bermuda, which do not charge corporate taxes.

Tax abuse by multinationals and evasion by wealthy individuals costs countries around the world $ 427 billion a year in lost revenue, according to an investigation by the campaign group Tax Justice Network. It is estimated that the UK will lose £ 25 billion of tax revenue due to the transfer of profits.

Proposals for a global minimum tax rate and the allocation of tax rights based on where companies get their money, rather than the low-tax zone a company chooses to record its earnings, would help end the “race to the bottom.” background “in which a nation reduces taxes. to attract business only to be surpassed by another country. Such a plan would give governments greater certainty about revenue collection.

There are two key strands of the plan for a global minimum corporate tax, broadly following the work of the OECD “pillar one” Y “pillar two”Blueprints for global tax reforms established in October.

Under the first pillar, tax rights would be granted to a portion of a multinational’s profits based on where its clients reside, regardless of the company’s physical presence in that location. That could include a threshold that would mean it captures the world’s 100 largest multinationals, but not the smallest companies.

Under pillar two, governments could still set whatever local corporate tax rate they wanted. But as part of a global minimum rule, if companies were to pay lower rates in a particular country, their home governments could claim “surcharges” to the agreed tax floor, eliminating the advantage of shifting profits to a tax haven.

Richard Partington

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There is significant support for the idea within Europe, but speaking to the European Parliament’s committee on economic and monetary affairs, Cyprus Finance Minister Constantinos Petrides said his government would oppose an EU directive limiting the formulation of national fiscal policies. An EU directive on taxes would require the unanimous support of all 27 member states.

Cyprus and Ireland have the lowest corporate tax rates in the EU (12.5%), and both countries have framed the debate as one of national sovereignty.

“We are in favor of maintaining the policy of setting the tax rate as a national competence, maintaining an adequate level of corporate tax rate for the sustainable development of the economy and investments,” said Petrides.

Sven Giegold, a German MEP who is the Greens’ finance spokesman in the European parliament, said a “coalition of the willing” within the EU should still endorse the Biden plan.

He said: “It is an illusion to think that we can make significant progress on tax matters without exploring alternatives to the principle of unanimity in the council.

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“We have to prevent European tax havens like Ireland and Cyprus from sabotaging much-needed progress on tax matters.

“Rather than huddle with the tax havens of the interior of Europe, European countries should join the US in developing a progressive tax agenda.”

Biden had initially proposed a global tax rate of 21%, but the level has been lowered after negotiations with other major economies.

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