A global corporate tax rate of at least 15% was agreed upon by 130 countries, the Organisation for Economic Co-operation and Development (OECD) said on Thursday.
But Hungary and Ireland were part of a small group of countries that did not agree on the tax rate on multinationals.
The Irish government expressed its "broad support" for the agreement but noted its "reservation about the proposal for a global minimum effective tax rate of ‘at least 15%’
Does 15% sound like too much. Certainly not, most countries, even Ireland and perhaps except tax havens, have a higher official tax than 15%. It is a step in the right direction, however:
- The problem is rarely the minimum tax, but rather the private deals of governments with large corporations to lower this to, sometimes, near zero taxes.
- Countries that are less attractive for investments cannot lower their taxes. This equates to having to sell your oranges at 50 cents a pound no matter if they are ripe, large, small, juicy or dry.
- Since not all countries participate, this does not address the problem of corporations setting shadow structures on these.
One of the key points however is the intent of the states to charge tax where goods are consumed. This is obviously aimed at Google, Facebook, Amazon, Netflix and the like, who, until now were declaring the profits where they choose. This would look as simple as this:
- An iPhone is manufactured in China or India. It costs 25 USD.
- This iPhone is sold to a company in a lox tax country. The iPhone is sold for 25 USD and one cent. One cent of profit is taxed in China or India at (e.g.) 30%. They pay .3 cents of taxes.
- An Irish corporation buys the iPhone for 200 USD. This is taxed at the low tax countries profit tax (e.g. 1%, so they pay 2 USD there)
- The iPhone is now in the European Union, it travels freely to Germany where it is sold at 210 USD. This profit is taxed in Ireland at 10% (thanks to an special agreement). That is 1 USD of tax.
- VAT is applied at 20%, that is around 40 USD. That´s paid in Germany.
Apart from VAT, The real tax at that 15% minimum if you do not do all this tax avoidance is (210 - 20) *15%, plus VAT.
Excluding VAT, the tax should have been 28.5 USD and they have managed to pay 3.3 USD. This is a very basic example and figures are probably far from accurate, but you get the idea. A solution has to address this pick and choose of where to pay.
I think you are mistaken in two aspects. One is that the 15% tax rate is basically created for Double tax avoidance agreements. This means when a foreign company operates in a country it will either pay the tax at the rate specified in that country or the rate of DTAA whichever is lower, This is done to avoid the problem of double taxation because the same income used to get doubly taxed in both the source country and the home country, this practice actually made a lot of companies set up their head offices in Off-shore tax-free Islands. This is why OECD decided to give this thing a nod.
Secondly talking about the iPhone thing. Can you please refer to the source of your calculation? Because if you manufacture in India or China you surely pay the VAT or the GST, even if I assume that on exports it can be rebated but in Income tax, there is a section of transfer pricing which means the margins on your products should always be adequate to ensure that you don't transfer profits into a lower tax country. This section can be invoked here for sure.