Why Estonia hasn’t backed global corporate tax proposal

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High modern glass buildings together with historical buildings in Tallinn, Estonia.

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A proposal to set a global minimum tax rate for businesses has gained traction as more than 130 countries throw their support behind the plan.

But Estonia is holding out, and it’s not because it wants to keep taxes low to attract foreign companies.

The Biden administration is pushing for a minimum corporate tax of at least 15%. It’s aimed at stopping multinational companies from evading higher taxes by moving their profits to so-called “tax havens” such as Ireland, even though their customers or operations may be located elsewhere.

Estonia’s corporate income tax rate is already at 20%.

“There are no companies in Estonia, currently, which will actually fall under this new proposed regulation,” Estonian President Kersti Kaljulaid told CNBC’s Rosanna Lockwood at the Asia Tech x Singapore summit on Tuesday.

We are not stealing any dollar of tax money from any country, globally.

Kersti Kaljulaid

Estonian President

“We are discussing theory. We are not stealing any dollar of tax money from any country globally,” she said.

She later added that Estonia is “extremely transparent” with its tax board. “We are no tax haven,” she said.

About 15 countries do not impose a general corporate income tax, according to data by the Organisation for Economic Co-operation and Development (OECD), Washington-based think tank Tax Foundation and consultancy KPMG. Among them are island nations like Bermuda, Cayman Islands and British Virgin Islands — widely referred to as offshore “tax haven” jurisdictions where large companies shift profits to.

More details needed

The president said Estonia needs to have more details about how the global minimum tax will work before backing the the proposal.

“We need to see this technical debate about how this tax will exactly work, to see whether our system needs to be adjusted or can continue as it is,” she said.

She pointed out that when the country joined the European Union, there were concerns that its tax system would be incompatible, but it was later found to be “totally compatible.”

“Because we do not know the technicalities, we cannot yet sign,” said Kaljulaid.

The discussions cannot be rushed, and it’s not yet clear what the regulation will eventually look like, she added.

“But when the technicalities become known, and we can negotiate about these technicalities, I am quite sure that we will find a way to prove to the world that our tax system actually will work with this new system globally as well,” she said. “I’m very optimistic.”

CNBC’s Yen Nee Lee contributed to this report.

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