OECD outlines guidance for governments on introducing 15pc tax rate

Reforms expected to yield an extra $220bn in tax income globally

'The continued progress in implementing the global minimum tax represents another step in levelling the playing field for US businesses,' said Assistant Secretary of the Treasury for Tax Policy Lily Batchelder. Photo: Stefani Reynolds/Bloomberg

Leigh Thomas

February 03 2023 02:30 AM

The Organisation for Economic Cooperation and Development (OECD) detailed on Thursday the final guidance for governments on how to bring the new global minimum corporate tax into their law books, taking the reform a step closer to roll out next year.

In the deepest overhaul of cross-border tax rules in a generation, nearly 140 countries had agreed in 2021 to apply a minimum tax rate of 15pc on multinationals by committing to a top-up tax on profits booked in countries that have lower rates.

The reform, which the OECD expects will yield an extra $220bn (€201bn) in tax income globally, aims to update decades-old rules on cross-border tax for the digital age where tech giants like Apple and Google can book profits in low-tax countries such as Ireland.

The OECD's final guidance aims to clarify lingering details so that governments adopt tax codes in a consistent and coordinated manner to limit compliance costs for companies and potential for conflicts.

The OECD said it offered details particularly on how other governments should recognise an existing US minimum tax known as the Global Intangible Low-Taxed Income, or GILTI, which covers patents, trademarks, or copyrights.

The guidance, eagerly awaited by companies and tax advisers in addition to tax administrations, also fleshes out details on the scope of companies covered as well as operational and transition steps.

The US Treasury Department said the guidance would provide clarity, while protecting tax incentives such as the green tax credits contained in the Inflation Reduction Act.

"The continued progress in implementing the global minimum tax represents another step in levelling the playing field for US businesses," said Assistant Secretary of the Treasury for Tax Policy Lily Batchelder.

She said it will also protect US workers and middle-class families by ending the race to the bottom in corporate tax rates.

The overhaul is gathering steam ahead of implementation early next year after EU countries agreed in December on the roll out of the minimum tax across the 27-nation bloc.

Japan is preparing its domestic legislation and Switzerland is due to hold a referendum in June.

However, the outlook is less certain for separate plans under the overhaul to re-allocate 25pc of profit from the world's largest multinationals for taxation in the countries where their clients are, regardless of their physical location.