Cyprus cannot “block” the minimum tax proposal; OECD model expected

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There has been a lot of outcry in the press about how Cyprus could ‘block’ an EU minimum corporate tax proposal of the kind the G7 is making. policy document released on Saturday advanced.

Cyprus cannot “block” such a proposal, because such a proposal is not possible under EU terms. founding treaty, as experts point out.

“It is the Member States that determine the taxes within their jurisdictions, not the EU,” comments James Watson, chief economist at the Brussels-based trade organization. BusinessEurope.

“Neither the European Commission nor the European Parliament have the right to propose tax harmonization legislation”, insists Nikos Korogiannakis, lawyer at Elias Neocleous & Co. in Brussels, and expert in Community law.

In case this is not clear enough: “Direct taxation remains the sole responsibility of the Member States”, declares the Eur Lex site.

That this question arises is largely the fault of the G7 itself, which drafted a document that raises many questions, according to legal experts.

“The G7 proposal only represents the views of seven countries,” notes Watson. “He will have to come to a much broader agreement before there is a change.”

“There is still a lot of work to be done, and it will be necessary to mobilize the support of the G20 countries which will meet in Italy next month while the broader negotiations will involve 139 countries”, notes the French Minister of Finance Bruno Lemaire.

There is only one paragraph in the communiqué of the finance ministers and central bank governors of the G7 devoted to this subject:

“We strongly support the ongoing efforts under the inclusive G20 / OECD framework to address the tax challenges arising from the globalization and digitization of the economy and to adopt a global minimum tax. We are committed to reaching a fair solution on the allocation of taxing rights, with market countries being assigned taxing rights on at least 20% of profits exceeding a 10% margin for the most multinational companies. large and most profitable. We will ensure proper coordination between the application of the new international tax rules and the removal of all taxes on digital services, and other relevant similar measures, on all businesses. We are also committed to applying a global minimum tax of at least 15% country by country. “

As Reuters tax experts report: “There is still a long way to go – including the parameters that will determine how and to which multinational companies the tax will be applied. “

The OECD should play a central role

The reference to the OECD in the proposal is more important than it seems, as Watson points out.

Likewise, Amazon told the Financial Time that it expected from the OECD to manage the minimum tax:

“We believe that an OECD-led process that creates a multilateral solution will help stabilize the international tax system,” the company said.

“We expect the OECD to play a similar role in creating a multilateral agreement and enforcing it as it does with other international tax issues,” Watson comments, and that’s the point of view. of a number of experts interviewed by the Cyprus Mail. .

For example, the OECD Agreement on Base Erosion and Profit Shifting (BEPS) was established in 2016. Over the years, more than 135 countries have signed the agreement which includes “15 measures to fight tax evasion, improve the consistency of international tax rules and ensure a more transparent tax environment.

Countries that did not sign the BEPS agreement were blacklisted if their tax laws were too at odds with the agreement.

Likewise, the OECD developed in 2014 a common reporting standard for exchanging tax information which ensures that taxpayers cannot hide their status.

“The OECD will first create a multilateral agreement, and once there is a broad international consensus around it, the harmonization sought by many countries, as well as the elimination of contentious digital taxes, would be established. “, concludes Watson.



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