Global Minimum Tax Set at 15% Targets Digital Companies

As CPAs and tax experts with an understanding of international tax laws, bolstered by our LLM in Tax Law and membership in Russell Bedford International, we are well-equipped to navigate the complexities of the evolving global tax environment. Our affiliation with Russell Bedford International, which spans 110 countries, places us in a unique position to file and advise on tax matters globally, especially in light of the recent international tax legislation.

Globalization and digitalization have reshaped the landscape of legal tax avoidance, particularly for multinational enterprises (MNEs). These enterprises have historically capitalized on the ability to shift profits to jurisdictions with low or no tax rates, thereby significantly impacting the domestic tax revenues of G20 and OECD member countries. In response, the G20 and OECD initiated a comprehensive strategy in 2016, outlining 15 action points aimed at combating base erosion and profit shifting (BEPS). This initiative was driven by the need to ensure that MNEs contribute a fair share of taxes in every country where they operate.

A pivotal development in this area is the agreement by 136 countries, representing over 90% of the global GDP, including the UK, to establish a global minimum tax rate of 15%. This milestone, which fulfills the second pillar of the BEPS project, will apply to MNEs with annual revenues exceeding EUR 750 million. The introduction of this global minimum tax is designed to stabilize the international tax system and provide greater certainty for both taxpayers and tax administrators.

Traditionally, taxation of entities has been based on their profits within the countries of their residence or where they have established a permanent presence. MNEs have exploited these rules by situating their operations in low or no-tax jurisdictions while minimizing permanent establishments in higher-tax areas. This strategy has been particularly advantageous for digital companies, which often do not require a physical presence and can generate revenue in high-tax jurisdictions but remain taxable in low-tax regions. The BEPS project, including the implementation of the global minimum tax, is a concerted effort to ensure that these MNEs pay a minimum level of tax on their profits, irrespective of their residency or location of permanent establishments. This significant shift will compel digital MNEs to reassess their organizational structures and tax strategies once these regulations are enacted in each member country.

In light of these significant international tax developments, particularly for multinational enterprises navigating the complexities of cross-border taxation and the new global minimum tax, it is more critical than ever to engage with a knowledgeable and experienced tax advisory firm. Shajani CPA, with our comprehensive understanding of international tax law, bolstered by our LLM in Tax Law and our extensive global reach as members of Russell Bedford International, is ideally positioned to guide you through these evolving challenges. Whether you are contemplating a tax reorganization for an MNE or seeking expertise in cross-border tax matters, our team offers unparalleled insights and tailored solutions. By partnering with Shajani CPA, you ensure that your enterprise is not only compliant with the latest international tax regulations but also strategically positioned to optimize your tax obligations across multiple jurisdictions. Let us help you navigate this complex tax landscape with confidence and strategic foresight.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2023 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services.