The Group of Seven member countries have agreed to exempt the United States from the 15 percent global minimum corporate tax rate.
In a statement released on June 28, the Canadian G7 Presidency said that a ‘side-by-side’ solution would exempt US parented groups from the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) in recognition of the existing US minimum tax rules to which they are subject.
“There is a shared understanding that a side-by-side system could preserve important gains made by jurisdictions in the Inclusive Framework in tackling base erosion and profit shifting and provide greater stability and certainty in the international tax system moving forward,” the statement notes.
The global minimum tax, which is based on the Global Anti-Base Erosion Model Rules, ensures that large multinational enterprises pay a minimum level of tax (at the rate of 15%) on their income in each jurisdiction where they operate, thereby reducing the incentive for profit shifting and placing a floor under tax competition, bringing an end to the race to the bottom on corporate tax rates. The US never ratified the proposal.
A side-by-side system would fully exclude US parented groups from the UTPR and the IIR in respect of both their domestic and foreign profits. It would include a commitment to ensure any substantial risks that may be identified with respect to the level playing field, or risks of base erosion and profit shifting, are addressed to preserve the common policy objectives of the side-by-side system.
“Delivery of a side-by-side system will facilitate further progress to stabilize the international tax system, including a constructive dialogue on the taxation of the digital economy and on preserving the tax sovereignty of all countries,” the statement notes.