Australian Treasurer Remains Positive About Progress of A Global Minimum Tax at G20 Meeting
Australian Treasurer Jim Chalmers expects to see some progress on the global minimum tax reform in the coming days as he flies to India to attend a major G20 meeting.
G20 financial ministers and reserve bank governors will gather at Gandhinagar, India, from July 17-18 to discuss crucial issues concerning the global economy.
One major issue to be discussed at the meeting is the adoption of a set of international tax rules, which introduces a global minimum tax to address problems arising from the digitalisation of the global economy.
During an interview with the Australian Broadcasting Corporation before heading to India, Mr. Chalmers remained optimistic about the progress of the tax reform.
“There’s been progress made over the years, and we want to advance that progress further. This is a really important opportunity to make sure that we get the multinational tax arrangements right so that companies pay taxes where they make their profits so that we can fund services in countries like ours,” he said.
“There’s a program from the OECD (Economic Co-operation and Development)–governments of both persuasions here in Australia have participated in that.
“And ideally, at these G20 meetings of economic ministers and central bank governors, ideally, we will advance that agenda a bit further.”
The treasurer noted that Australia had made preparations in relation to domestic policies to facilitate international tax reform.
He also believed that Australia would benefit from the extra US$220 billion (AU$323 billion) in estimated global tax revenue generated by the introduction of an international minimum tax targeting multinational companies.
“We cost, and we update our multinational tax proposals as they evolve. And hopefully, this meeting in India in the first half of next week, we can progress these matters in the interests of the Australian people,” Mr. Chalmers said.
What is the Global Minimum Tax
The global minimum tax is part of the OECD’s domestic tax base erosion and profit-shifting project that aims to resolve the issue of multinational enterprises exploiting the differences in countries’ tax systems to avoid tax.
Under the proposed changes, multinational enterprises with annual global revenue of €750 million will need to pay a 15 percent minimum tax rate in each jurisdiction they operate.
In addition, countries would be able to impose a top-up tax on resident multinational companies if their income is taxed below 15 percent overseas.
According to consultancy giant KPMG, a minimum global tax would neutralise the effects of low tax incentives offered by some countries to attract foreign investments.
This would deter multinational companies from setting up bases or branches in tax havens to maximise their profits.
However, it will result in countries that rely on tax incentives losing their advantage and suffering from investment losses.
Furthermore, as a parent jurisdiction can impose a top-up tax on resident multinational companies, overseas countries offering tax incentives may see an outflow of tax revenue.
The Australian government announced in the May federal budget that it would implement a 15 percent global minimum tax for multinational companies and a 15 percent global domestic minimum tax from July 1, 2024.
However, the proposed changes have not become law.
The OECD estimated that around US$240 billion was lost to tax avoidance committed by multinational companies each year.
So far, over 135 countries have agreed to collaborate on implementing international tax reform.
