WHAT'S NEXT FOR PILLAR 2 AND THE MINIMUM GLOBAL CORPORATION TAX RATE?

WHAT’S NEXT FOR PILLAR 2 AND THE MINIMUM GLOBAL CORPORATION TAX RATE?

In July 2021, BVI Finance convened its first panel of experts to discuss the Organisation for Economic Co-operation and Development (OECD) proposed global tax reforms which had just been endorsed by G7 and G20 countries in the month prior.

Since, then, there has been continued debate around the benefits and drawbacks of the Global Minimum Corporate Tax, as well as a legislative push from supporting nations to implement the changes into law.

Earlier this year, BVI Finance hosted a follow-up panel discussion, ‘What’s next for Pillar 2 and the minimum global corporation tax rate?’, once again bringing together experts to take a deep dive into the current key issues, in order to evaluate how the reforms have progressed since 2021 and discuss the likely future of the OECD’s proposal.

Moderated by Oliver Cooper, Policy Lead at Charles Russell Speechlys LLP and Counsel to the IFC Forum, the expert panel consisted of Geoff Cook Geoff, Cook Advisory Ltd, Chair of Mourant Consulting Ltd and Chair of the STEP Global Public Policy Committee, Mark Pragnell, Director of Pragmatix Advisory and La Toya James, Director of the BVI International Tax Authority.

BACKGROUND AND WHERE WE ARE TODAY

The Organisation for Economic Cooperation and Development’s (OECD) Pillar Two proposal to set a global minimum corporate tax rate has been widely reported, but not always with the greatest level of accuracy. This has resulted in confusion about its implementation and ramifications.

To establish the basics, the OECD envisages a global minimum corporate tax rate of 15% on multinationals with sales of more than €750 million and a profits tax levied where sales are made – not where profits are reported – on companies with over $20 billion of revenue. According to the organisation, the reform will yield an extra $220 billion in global tax revenue.

At the time of discussion, the plan has been endorsed by 137 countries including the UK and US. The European Union strongly backs the idea, with some countries, such as France and Germany, calling for a higher minimum tax rate than is currently proposed. Swiss voters are also expected to approve the new tax regime by ballot in June, with most political parties backing the change.

Others, such as Ireland, which have attracted multinational companies with their low corporate tax rates, have expressed concerns about the impact of a global corporate minimum tax on their economies and have called for an extended transition period. Significantly, jurisdictions can choose not to implement Phase 2 and there currently no penalties for this decision.

UNDERSTANDING THE ISSUES

“The plan originated in Europe, especially in France and Germany, who were concerned about a race to the bottom on corporation tax” notes Geoff Cook, who added:

“it’s true that corporation tax levels have fallen over the last couple of decades. However, the tax base has broadened and as a result countries are actually collecting more corporation tax. The decision to implement a minimum corporate tax rate is more about the revenue deficit of many large countries, and the opinion that businesses should contribute more in order to address issues such as unfunded social welfare benefits.”

Geoff also noted that the low levels of tax being paid by American digital companies, especially in Europe, was another key motivator.

Mark Pragnell believes that the complex nature of the Pillar Two proposal is, in part, the root cause of the confusion around its intended operation, including in the specialist financial press.

“It’s no surprise that the nuances have been missed,” he explained. “It’s very easy to misconstrue what a global minimum tax is. International Financial Centres (IFCs) really need to be aware that they’ll have a better understanding than the bulk of their client base.”

TAKING A LEAD ON GUIDANCE

La Toya James added “We’ve kept an eye on how this has developed and it’s going down the same path as every other international tax proposal. I think what we’ll see is the BVI providing guidance to jurisdictions that have to apply the OECD’s minimum global corporation tax. Our government has put a lot of resources into the International Tax Authority to ensure we can follow the changing landscape.”

Mark Pragnell: “At the practical level there’s not a lot of activity. However, there is a still a question around what could be done. Fundamentally, what a global minimum tax does is remove one the levers a nation can have to demonstrate their competitiveness and to provide an incentive for that location. Where this has the biggest impact is amongst developing nations, where being able to offer tax breaks has been a big driver of inward investment.”

According to Cook, the OECD tries to act equitably and he believes it will deal with the global minimum corporate tax rate in a pragmatic way. “However, I’d be surprised if any IFC’s installed their own minimum tax in the early stage,” he added. “We have to be very careful in what we do and how we choose to get involved,” added James. “Going from no taxation to 15% would be very big administrative burden for the government of the BVI.”

However, like other countries and jurisdictions, the BVI will carefully consider the implications of a global minimum corporate tax rate and will share information to help ensure that it is implemented in a way that is fair and equitable for all stakeholders, including small and developing economies, particularly those that have relied on low tax rates to attract foreign investment and stimulate economic growth.

“There are still questions about what countries are thinking of doing and how this will impact IFCs” says La Toya James.

The full taxing times breakfast briefing can be viewed on the BVI Finance YouTube Channel.

MODERATOR

Oliver Cooper, Policy Lead, Charles Russell Speechlys LLP, Counsel, IFC Forum

Mr. Cooper advises governments and private clients on international regulations and trends in tax, trade, and financial services. His work specialises in advising on international tax reform, economic substance, and related market access issues.

PANELISTS

GEOFF COOK, Geoff Cook Advisory Ltd, Chair, Mourant Consulting Ltd Chair, STEP Global Public Policy Committee

Mr. Cook is an experienced Chair and nonexecutive director. He has led significant business enterprises for more than three decades and helped major international groups to grow and prosper. As a Chartered Director, Geoff has deep knowledge of corporate governance, global regulation, and risk management. He has authored numerous articles and papers on cross border investment and the role of International Finance Centres (IFCs) in the global financial system.

La Toya James Director, BVI International Tax Authority

Ms. James is the director of the International Tax Agency since 2015, La Toya is an expert in international obligations and exchange of information for the British Virgin Islands. She’s a qualified lawyer with a strong background in legislative drafting, including a master’s from the University of London. She also served as a Tax Policy Analyst at the OECD.

Mark Pragnell, Director, Pragmatix Advisory

Mr. Pragnell has almost 30 years’ experience of applying economics and business research techniques to markets, industries and public policy. He has held leadership roles in respected macroeconomics consultancies, as well as policy and campaigning organisations.