The United States supports France to implement minimum corporate taxation and hopes for an OECD solution to taxing the digital economy before the end of 2019. The supports were conveyed by Treasury Secretary Steven Mnuchin during a joint press conference with French Finance Minister Bruno Le Maire in Paris.
According to Le Maire, the minimum corporate taxation is a key priority for the French G-7 presidency as it is the best way to move forward on the subject of taxing the digital economy. The concept of minimum taxation is also one of four main options up for discussion within the OECD’s inclusive framework on base erosion and profit shifting, which is working toward a consensus-based agreement on taxing the digital economy by 2020.
The minimum corporate taxation instrument does not aim at a (definitive) reallocation of taxation rights, but instead adds a general backup-rule to the traditional allocation of taxing rights. If the jurisdiction that is entitled to tax business profits under the established rules of international taxation makes ‘sufficient’ use of its right to tax, nothing will change. However, if the tax burden on corporate profits is too low there, a supplementary minimum tax will be levied.
This subsidiary right to tax would rest either with the country of residence (i.e. in the country where the firm has its headquarters, or where the ultimate parent or an intermediate holding is situated) or with the market jurisdiction (the country where the goods and services are sold and paid for).
With the minimum tax, the government can argue that in the future the destination country would have subsidiary taxing rights whenever the recipient state does not exercise its taxing rights sufficiently, and that the problem of under-taxation of large digitalized businesses would also be taken care of.
The United States has repeatedly warned countries against taking unilateral action on digital economy taxation and has been especially critical of the EU’s DST proposal, which the U.S. government has said it is discriminatory against American companies.
Despite the unilateral action taken by France on GAFA (Google, Amazon, Facebook, and Apple) tax, the US treasury supports the global minimum tax initiated by France along with Germany. The support is given due to a similar concept between global minimum tax and Global Intangible Low-Taxed Income (GILTI) that was laid out in U.S. Tax Cuts and Jobs Act. While giving the support for France, the treasury also hopes that the OECD would come up with a solution for taxing the digital economy before the end of 2019. To do so, Mnuchin and Le Maire have instructed their teams at the OECD to try to quickly solve the problem of adapting international tax rules to the digital age.
TPA Global provides solutions in the area of BEPS, Value Chain Analysis for multinationals along with variety of tax, business and educational technologies. Let us show you how to improve your operations and move from “staying out of trouble” to “being in control”.