Australian Treasurer Jim Chalmers is optimistic about progress on the global minimum tax reform as he travels to India to attend a G20 meeting. The meeting, which will take place in Gandhinagar from July 17-18, will discuss important issues related to the global economy. One of the key topics for discussion is the adoption of international tax rules that include a global minimum tax to address challenges stemming from the digitalization of the global economy.
In an interview with the Australian Broadcasting Corporation before his trip, Chalmers expressed his optimism about the tax reform’s progress. He emphasized the importance of ensuring multinational tax arrangements are correct so that companies pay taxes in the countries where they generate profits, thereby funding essential services. Chalmers also highlighted Australia’s participation in the OECD’s tax reform program and expressed a desire to further advance the agenda at the G20 meeting.
Chalmers noted that Australia has prepared domestic policies to facilitate international tax reform. He further believed that the country would benefit from an estimated $220 billion increase in global tax revenue resulting from the implementation of an international minimum tax targeting multinational companies.
The global minimum tax is part of the OECD’s project to address tax base erosion and profit shifting by multinational enterprises. Under the proposed changes, multinational enterprises with annual global revenue of €750 million would be required to pay a 15% minimum tax rate in each jurisdiction they operate. Countries would also have the option to impose a top-up tax on resident multinational companies if their income is taxed below 15% overseas.
The implementation of a global minimum tax would counteract the effects of low tax incentives offered by certain countries to attract foreign investments. This would discourage multinational companies from establishing bases or branches in tax havens to maximize their profits. However, countries that rely on tax incentives would lose their advantage and face investment losses. Additionally, overseas countries offering tax incentives may experience a decrease in tax revenue due to the imposition of a top-up tax by the parent jurisdiction.
The Australian government has announced plans to implement a 15% global minimum tax for multinational companies and a 15% global domestic minimum tax from July 1, 2024, as stated in the May federal budget. However, these proposed changes have not yet been enacted into law. The OECD estimates that multinational companies commit around $240 billion in tax avoidance each year.
Over 135 countries have agreed to collaborate on implementing international tax reform.