Delay in global minimum corporate tax will give policymakers time for more orderly execution

A 1-YEAR delay in the implementation of the global minimum corporate tax of 15 per cent, to 2024, will be welcomed by industry players as it allows for a more orderly execution of very complex rules and gives policymakers time to assess how different countries plan to fulfil the requirements.   

Chris Woo, PWC Singapore’s tax and people and organisation – rewards leader, told The Business Times that the original 2023 timeline is challenging.

“In addition to the political challenges of securing international consensus, countries will need time to incorporate the global minimum tax into their domestic laws,” he said.

Given the complexity of the rules and the vast amount of data required, both tax administrations and taxpayers would benefit from having more time to work through the details and put in place systems and processes needed for implementation, he added.

Comments by Organisation for Economic Co-operation and Development (OECD) secretary-general Mathias Cormann at the World Economic Forum in Davos suggest the implementation of Pillar One of the Base Erosion and Profit Shifting 2.0 global tax agreement is likely to be deferred until 2024. Pillar One concerns the reallocation to jurisdictions of taxing rights over a portion of the profits of the largest, most profitable multinationals.

However, this does not mean the delay will necessarily extend to Pillar Two, whose global anti-base erosion rules include a proposed global minimum tax rate of 15 per cent for multinational enterprises with a turnover of more than 750 million euros.

Cormann noted it is now up to individual jurisdictions to implement the Pillar Two Model Rules into their legislation and that it was out of the OECD’s hands.

KPMG partner Mark Addy said that the implementation could be delayed till 2024 at the earliest across most countries, given the recent developments in Europe.

Russia’s war against Ukraine has further exacerbated supply chain disruptions previously brought on by Covid-19, resulting in higher energy and food prices and significant price volatility. Global growth forecasts have been slashed, with the OECD expecting the United States and eurozone economies to grow by just 2.5 per cent and 2.6 per cent, respectively. 

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Harvey Koenig, partner of energy and natural resources, telecommunications, media and technology, and tax at KPMG in Singapore, said the global anti-base erosion rules will introduce several new layers of compliance requirements.

Businesses will be required to develop new processes, systems and capabilities, which will take time. Tax authorities around the world will also need time to consult and legislatures will need to pass laws to introduce these rules as part of domestic legislation, as well as develop the administrative framework and capabilities to administer the rules. 

For Singapore, a deferment could give policymakers here an opportunity to assess if and how different countries implement the rules.

Koenig said: “If necessary, Singapore will be able to make the appropriate adjustments to its tax system to ensure that it continues to be competitive and remains a compelling place in Asia to do business.”

Most businesses are still grappling with the complexity of the rules and have been working out the additional resources they will need to manage the increased administration.

Companies are currently at varying stages of the process, with some making impact assessments while others have started laying the groundwork for implementation based on their resources. Those that are more advanced in their preparation would have completed their initial impact assessment and formed their project steering committee to study data readiness and automation.

Despite the macro headwinds this year, the momentum for a global minimum tax is still very strong.

“It’s not all doom and gloom, and we may even see some companies looking to expand their footprint in Singapore to take advantage of its relatively low headline tax rate of 17 per cent,” Addy said.

Chester Wee, EY Asean international tax and transaction services leader, said there is no finest hour to implement the new tax rules.

“The objectives of the global minimum tax proposal are to curb harmful tax competition between nations and address remaining base erosion and profit shifting concerns.

“Ideally, multinationals would prefer to face complex tax changes at a time when they have resources to deal with them, not when purse strings are tightened. That said, if governments can act in concert in providing clarity on a definitive roll-out road map, it will help multinationals in their planning and readiness preparation,” Wee said.

He believes adhering to the original implementation schedule of 2023 will give certainty to affected multinationals that this initiative is going ahead. A delay could breed complacency, with those who continue to wait and see finding themselves in a less favourable position.

But the 2023 timeline is considered by some to be very ambitious. Various countries including European Union member states have said they would delay the implementation by a year.

Switzerland will implement it from 2024. Recently, the Swiss finance ministry said the federal government would get a quarter and regional and local authorities 3-quarters of revenue, as it outlined how the deal would be implemented. Imposing an additional tax on undertaxed firms will ensure that large companies are spared foreign proceedings, the Swiss government said.