Multinational corporations such as Amazon, Facebook and Apple will now have to pay a minimum global tax of 15%. Even hiding their profits in tax havens won’t help. They will have to pay tax where they generate their profits, not where they produce or where they have their fictitious headquarters. This has been agreed by 138 countries after years of negotiation. This global tax is now coming into force – a “reform of the century” on the road to fair taxation.
OECD countries and the G20 nations have been negotiating global tax justice for more than ten years. In 2021, 138 of the 141 countries agreed on a two-pillar reform; a minimum tax rate of 15% and a tax shift away from the place of production to the place where profits are made. The regulation will come into force in January 2024.
The basic idea is simple. If profits in tax havens are taxed at a higher rate, it pays less for companies to shift their profits there. This won’t only effect stereotypical tax havens such as the Caribbean islands, where there is often no corporation tax at all. Tax havens within the EU, such as Ireland with 12.5% corporation tax or Hungary with 9%, are also set to be hit.
“The principle of paying taxes where profits are generated is gaining acceptance and a common tax rate of 15 per cent puts a stop to destructive downward tax competition,” says Evelyn Regner. The MEP (Social Democratic Party of Austria) has been campaigning for fairer taxation of corporations at the European level for years.
Despite criticism that China and the USA are not on board, and that a global tax rate of 15% is too low, there has never been a comparable regulation before.
“For the first time in the history of taxation, states are being given the right to tax profits generated in other states according to agreed rules,” write tax experts Prof Dr Deborah Schanz and Dr Ulrike Schramm.
A MINIMUM TAX RATE OF 15 % COULD BRING IN AN ADDITIONAL 220 BILLION DOLLARS
The minimum tax rate will apply to all groups with an annual turnover of more than 750 million euros – regardless of whether the parent company or only one subsidiary is based in an EU member state. This affects around 7,000 to 8,000 companies worldwide and, according to OECD calculations, is likely to generate around 200 billion dollars in additional taxes.
For Austria, the tax office is expecting 100 million euros in additional revenue from 2026. According to economist and head of the tax department at the Vienna Chamber of Labour, Dominik Bernhofer, this could even amount to 200 to 300 million euros per year. In the long term, it could be even more, as there will be less profit shifting and tax competition. Together with his colleague Professor Matthias Petutschnig from the University of Vienna, Bernhofer looked at 19 of the largest Austrian companies.