Uncertain trajectory of the international minimum tax rate
The world of international corporate taxation is undergoing a significant transformation with the introduction of the global minimum tax. This tax, focusing on the totality of all units within a state, not individual companies or business establishments, aims to ensure a fairer distribution of tax burdens across the globe.
However, the implementation of this tax has not been uniform across states. National tax systems heavily influence the interpretations of the regulations, with some countries yet to fully embrace the change. For instance, the European Union has taken a pioneering role, with all member states obliged to transpose the EU minimum tax directive into national law. On the other hand, the USA has opted out of the global minimum tax project, choosing to continue with its GILTI and BEAT minimum tax systems.
This "side-by-side" system, as it is called, presents numerous challenges. The national governments of the G7 countries involved, including the USA and other G7 states, have chosen to apply different regulations under this approach. This has raised concerns about achieving a level playing field in global tax policy and potential competitiveness disadvantages for European economies, particularly Germany.
The global minimum tax presents affected companies with major challenges due to high legal uncertainty. To address this, future dispute resolution mechanisms are hoped to provide clarity for affected companies, including U.S. corporations, as national minimum taxes continue to apply alongside the "side-by-side" approach.
In Germany, the drafts of a minimum tax adjustment law have concretized into a draft bill, aiming to adapt to developments at the OECD Inclusive Framework level and correct editorial errors. However, the country remains divided on the global minimum tax, with some calling for its abolition due to minimal tax yield and potential disadvantages for German companies.
Dr. Georg Bestelmeyer and Dr. Nils Linnemann, tax advisors and associated partners at Flick Gocke Schaumburg in Stuttgart and Düsseldorf, have been closely following these developments. They highlight that corporate accounting processes, typically used for informational purposes, are relied upon for the global minimum tax, which is new.
Moreover, European companies face a location disadvantage due to extensive disclosure and reporting obligations associated with the global minimum tax. Simplifications in the CbCR-Safe Harbour have their own pitfalls and may not avoid full tax calculations in all cases.
A global minimum tax of 15% was agreed upon by over 140 countries in October 2021. The minimum tax act has been in force in Germany since January 1, 2024, and is a complex regulatory framework with 101 paragraphs.
However, not all significant economies have embraced the global minimum tax. Some countries have introduced minimum taxes, but significant economies such as Brazil, China, and India remain cautious or opposed.
The G7 and the European Union are tasked with implementing the agreed-upon global minimum tax as soon as possible, with no significant adjustments needed to the EU minimum tax directive. The hope is that this will lead to a more equitable distribution of tax burdens and a level playing field for businesses across the globe.
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