A few days back the OECD, with great fanfare, announced that a global deal had been struck to equalize corporate taxes across the world at a minimum 15%. This agenda has largely been pushed by the Biden administration prior to the execution of a domestic increase in corporate taxes and paves the way for less competition…seemingly.
However, the deal has more holes than Swiss Cheese and will likely pose no impediment for large multinationals who look to minimize their marginal tax through transfer pricing and the use of shell corporations in tax havens. The new requirements would only apply to companies with annual revenue of more that 750 million Euro’s and does nothing to set the rules around deductible items or regulate transfer pricing.
Subsequently, the agreement is likely to have almost no teeth in its execution and enforcement and will be subject to the same work-arounds that have been in place for years. Additionally, “tax havens” will be loathe to enforce it to hard given the amount of money that large companies pump into their economies annually. In fact, many don’t even require sets of books to be kept onshore so how are they to assess turnover especially with limited staff numbers and corporate bank accounts spread across multiple jurisdictions.
The reality is that this tax change is more about the U.S and its domestic political pressures. It will have almost no impact on smaller offshore operations, but it is symptomatic of a general push by larger countries to enforce their tax rules upon the rest of the world. The reason being is that Western Legacy countries are scarred by the ongoing desertion of successful companies to other nations where they are treated better.
Ultimately, much should be being done to pave the way for these large multinationals to remain domestic entities but instead of improving their attractiveness they are simply building a better mouse trap.