The Government has launched a consultation on how a worldwide 15 per cent minimum corporation tax can be implemented domestically, in a move designed to tackle avoidance and ensure a more level playing field for UK businesses.
More than 130 countries signed up to a new global minimum tax framework in October 2021, after the G7 group, under the UK’s presidency, had earlier in the year agreed to the move in principle.
Fairer distribution of profits
The two-pillar package – the outcome of negotiations coordinated by the Organisation for Economic Co-operation and Development (OECD) for much of the last decade – aims to ensure that large Multinational Enterprises (MNEs) pay tax where they operate and earn profits, while adding much-needed certainty and stability to the international tax system.
Pillar One will ensure a fairer distribution of profits and taxing rights among countries concerning the largest MNEs, including digital companies.
It would re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there.
Pillar Two seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases.
Creating a move level playing field
The Pillar 2 framework will ensure large multinational firms pay tax of at least 15 per cent on profits in each country in which they operate, creating a more level playing field and further cracking down on tax avoidance. It will be operated on a country-by-country basis.
With changes aimed to come into effect from 2023, the consultation will run for 12 weeks.
The consultation seeks views on the application of the global minimum corporation tax in the UK, as well as a series of wider implementation matters, including who the rules apply to, transition rules and how firms within scope should report and pay.
Historic agreement says Sunak
Introducing the new consultation, Chancellor of the Exchequer Rishi Sunak said: “Ensuring large multinational groups pay the right tax in the right place has been a long-standing priority for the UK.
“We reached an historic agreement last October following more than a decade of talks and negotiations, and this marks another important milestone on how this will work in practice.”
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