The United States government is making a significant push for a corporate global minimum tax rate, which could introduce sweeping changes to international tax law for the first time in decades. As an international business, it’s critical to understand how this global minimum tax might impact your operations and bottom line.
What Is a Global Minimum Tax?
The United States and other countries want to discourage international companies from moving their profits to countries with lower tax burdens and recoup the tax revenue from those businesses. A global minimum tax is also aimed at addressing companies that receive significant revenue from intangible items like software and drug patents. A global minimum tax will reduce tax base erosion and give American-based firms the opportunity to compete. While there has been progress in the past, this administration is pushing it a great deal.
How Would the Global Minimum Tax Work?
This tax would factor into your profits overseas. If multiple countries agree on a global minimum tax, governments could still set a local corporate tax rate but enforce the minimum rate on companies that are located in another country where they pay lower rates. This removes much of the benefit of shifting operations to a country that serves as a tax haven. Many countries have already agreed on the concept of the tax, but the rate will be the most challenging part to agree upon across the globe.
What Minimum Rate Is Predicted?
The Biden administration is currently floating a global minimum tax rate of 21%, which is double the rate on the existing GILTI tax and above the 12.5% minimum that was proposed during past talks and identical to Ireland’s beneficial corporate tax rate. Ireland is one of many countries that has seen an influx of income over the past decade due to the very low corporate tax rates it extends to businesses, and much of the revenue has come from multinational businesses with most of their operations elsewhere. The administration is also attempting to raise the national tax rate to 28%.
Prepare Your Foreign Income Taxes with Help from MKS&H
MKS&H provides tax and accounting services to businesses of every size and in every industry. We can work with you to explore the many tax benefits of investment properties and assess your real estate portfolio. Contact us today for a consultation.