Canada has taken steps to comply with the 15% global minimum tax on multinational corporations since 2023, but reports show that the new system will negatively impact Canada’s wealth and tax revenues, with countries “first come, first served.” There is a possibility of “competing for international taxes in order”. First-come-first-served basis.
CD Howe Institute May 31st ReportAccording to Angelo Nikolakakis, a partner at international law firm EYLaw, Canada is “likely to fall into poverty” if it does not make “other strategic adjustments.”
Global corporate minimum tax Schematic Advocated by the Organization for Economic Co-operation and Development (OECD), the G20 consists of two pillars. Pillar One is allocating new tax rights to countries where the world’s largest multinational corporation (MNE) operates approximately 100 companies. The second pillar sets a minimum tax of 15% on multinationals with annual consolidated revenues of € 750 million (C $ 1 billion), including many Canadian multinationals.
“The government envisions the introduction of a true tax Smörgås board,” Nikola Kakis said.
The report analyzed the latest release from the OECD on the implementation of the minimum tax “model rule”. It describes the process used by each country in calculating the additional tax required when a company’s effective tax rate is less than 15% and how Canada uses it. We may compete to increase this tax revenue.
“If Canada adopts Canada’s first approach, we will get the best results. This will give Canada’s MNE Group an incentive to reduce foreign taxes, resulting in Canada collecting a world minimum tax of 15%. It will be a country to do, “said Nikolakakis.
However, according to the report, Canada could incur losses instead of raising additional tax revenues under the scheme. Nikolakakis said that if the relevant foreign jurisdiction generally or under the second pillar raises the tax rate, the adoption of Canada’s second pillar will be 35 with annual tax revenues estimated by the Canadian Finance Minister. He pointed out that he may not raise $ 100 million.
This is even more important, as Nikola Kakis explained that if a Canadian-based multinational company pays more foreign taxes, it can be offset by Canadian taxes otherwise paid. Especially because the after-tax foreign incomes of those multinationals will decrease.
“This reduces the ability to reinvest, reduces distribution to Canadian stakeholders and negatively impacts Canada’s economy as a whole,” the report said.
Instruct to make a choice
Nikola Kakis criticized the model’s rules. He said multinationals would not completely eliminate the benefits of cross-border income from low tax jurisdictions, but those benefits would diminish. He also said that the rule creates incentives for certain governments to raise tax rates optimistically, and, through the use of investment and development, discourages governments from relying on taxation as a means of industrial and social policy. It’s possible. ” Incentive. “
The report provided Canada’s considerations for implementing a minimum tax of 15 percent. One option is to reform the country’s international tax system to increase the likelihood that multinationals will pay additional taxes to Canada rather than to foreign jurisdictions.
Model rules allow one country to impose an additional tax on the profits of multinational corporations in another country where no additional tax is levied and the effective tax rate is less than 15%.
Canada is a jurisdiction with relatively high tax rates, with federal corporate tax rates 26.5%And Nikolakakis state that multinationals tend to maintain profits in foreign jurisdictions to avoid paying more than at least 15%.
However, another consideration in Canada is to attract business and income from foreign multinationals who wish to pay additional taxes to their parent jurisdiction. In this case, Canada may refuse to impose additional taxes.
Canada 137 To date, OECD member countries have agreed to the OECD / G20 framework for reviewing international taxation on large multinational corporations.
The purpose of the administration is to end the “race to the bottom” corporate tax that countries such as Ireland have attracted multinationals with low corporate tax rates.
Canada Digital Service Tax (DST)But the federal government Budget 2022 We hope that the new international system will soon be online, eliminating the need for DST deployments.
Federal budget too publication Started public consultation on the implementation of 15% tax and domestic minimum additional tax Admit “It is impossible to reliably estimate the impact on profits. [of the global minimum tax] At the moment. “