Deal signed on global corporate tax rate – What does it mean for you?
The majority of nations, including the UK, have agreed to a historic deal on corporate tax that ensures all companies pay their fair share.
Under the new rules, 136 countries have agreed to bring in a minimum corporate tax rate of at least 15 per cent, as part of reforms that ensure profits are taxed where they are generated.
The rules are part of a growing movement worldwide that attempts to tackle the offshoring of corporate tax, where businesses use transfer pricing and other methods to shift profits to lower tax jurisdictions.
In a big change, nations such as Ireland who had opposed the rules, have signed up. This is critical as some of the world’s largest companies are headquartered in the country.
Announcing the deal, UK Chancellor Rishi Sunak said it would “upgrade the global tax system for the modern age”.
“We now have a clear path to a fairer tax system, where large global players pay their fair share wherever they do business,” he added.
The measure may raise an additional £108 billion in tax for economies worldwide, which will help the globe to recover from the impact of COVID-19.
Despite the imposition of a minimum tax rate, the new measure does not eliminate tax competition. It is feared that some countries may ‘race to the bottom’ to ensure profits are taxed within their systems.
Alongside a minimum rate of corporate tax, the new rules also require a quarter of any profits, above a 10 per cent margin, to be reallocated to the countries where they were earned so they can be taxed there.
For most small to medium-sized businesses, the new rules that come into place in 2023 should have a minimal direct impact on them and the tax that they pay.
However, if they use the services of larger businesses, they may experience an increase in costs as companies drive up prices to offset the difference.
If you have questions regarding the new international corporate tax rules, please contact your Seymour Taylor representative today or email email@example.com or call 01494 552100.This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 29 November 2021.