Baker McKenzie: New year, new burden: the global minimum tax is here

By: Trademagazin Date: 2024. 01. 05. 11:11

In January of this year, the EU directive regulating the global minimum tax entered into force, the aim of which is to bring the effective tax burden of all corporate groups above 750 million euros to 15 percent. Determining the items that reduce and increase the minimum tax base, as well as the calculation of the additional tax burden to be paid, represents a huge administrative and legal burden for companies – warns the international law firm Baker McKenzie.

The global minimum tax was created as a response to the harmful and unsustainable tax competition arising as a result of tax optimization. Its publication is, without exaggeration, the most significant development in international taxation in the last fifty years.

As a general rule, taxation is linked to the physical presence of the company or management. This presence – the tax liability – can be easily changed at the international level, and accordingly, individual countries wanted to attract companies with tax reductions. At the same time, digitalization no longer requires a physical presence either, so income can be regrouped more and more easily in countries with lower tax rates. As a result, the corporate tax rate worldwide was significantly reduced by half to a third, and all affected budgets lost significant tax revenues. According to OECD statistics, the global average of corporate tax rates fell from 32.5% to 23.9% between 2000 and 2018.

International taxation is currently based on various bilateral agreements to avoid double taxation – Hungary has also concluded hundreds of such agreements. By the 2010s, the negative spiral of increasing tax competition made this system unsustainable, and a paradigm shift was needed.