Corporates scratching their heads over £2bn a year ‘global minimum tax’ forecast

Today’s Autumn Statement reveals that the Government are expecting to raise over £2 billion a year as a result of the G20-OECD proposals for a minimum global rate of corporation tax (known in the OECD jargon as ‘Pillar 2’). The Chartered Institute of Taxation (CIOT) is suggesting the amount likely to be raised could be significantly lower than this, unless other countries choose to implement the proposals in different ways that would not work to their best advantage.

Autumn Statement notes¹ state that the Government will legislate to implement the G20-OECD Inclusive Framework Pillar 2 framework in the UK by:

• Introducing an Income Inclusion Rule (IIR) which will require large UK headquartered multinational groups to pay a top-up tax where their foreign operations have an effective tax rate of less than 15%
• Introducing a supplementary Qualified Domestic Minimum Top-up (QDMTT) tax rule which will require large groups, including those operating exclusively in the UK, to pay a top-up tax where their UK operations have an effective tax rate of less than 15%

The Autumn Statement ‘scorecard’ records that this is expected to raise more than £2 billion a year from 2024-25 onwards.

However CIOT is pointing out that this does not appear to take account of changes other countries are likely to make to implement the proposal. In particular, if other countries adopt a QDMTT rule similar to our own, taking their effective tax rates up to the required 15%, then there will be less raised under our IIR rule.

CIOT Director of Public Policy John Cullinane explained:

“The proposal for a global minimum rate of corporation tax is a historic first. But we are doubtful it will raise the amount the Government are predicting.

“We haven’t seen the detailed calculations but instinctively it seems on the high side, given it is likely that most other countries will do as the UK is proposing and ‘top up’ their own corporate tax before letting the next country up in the chain get their hands on it.

“Another source of uncertainty is that the measures that will determine whether a company is above or below the 15% still haven’t been fully agreed and buttoned down internationally.

“Our understanding is that while companies’ tax experts are expecting an increase in compliance administration as a result of these complex new rules, few of them are expecting to pay significant extra sums in tax as a result.

“None of this is to say that a global minimum tax is a bad idea. If sufficient international agreement is obtained the whole process will result in a more level playing field, which should work to the advantage of countries like the UK.”