Articles Business and Entrepreneurship

Airtract Mohammed Shafeek Verified CEO at MSATC

Global Agreement on Tax Reform 09 August, 2021   

Through the ages, governments everywhere have grappled with different ways to design and implement taxes. But the recent announcement by the G7 Finance Ministers is significant in that governments are coming together to coordinate and synchronize their systems of corporate taxation.


The proposals involve fundamental changes to international tax rules - they will mean allocating more taxing rights of the largest and most profitable multinational enterprises to where their customers are; and implementing an internationally-agreed minimum effective corporate tax rate for large multinational enterprises (MNEs) wherever they operate. While the agreement is the first step in a long process before it can become a reality.


The G20, as expected, endorsed the OECD Inclusive Framework political agreement on the key components of international tax reform under Pillar One (reallocation of profits to markets) and Pillar Two (global minimum tax). The G20 has urged the OECD Inclusive Framework to address remaining issues and policy design elements, and prepare a detailed implementation plan, by the next G20 Finance Ministers meeting on 15-16 October 2021.


What will these changes mean for UAE?

For now, it is too early to say. What we know for sure is that the international rules for corporate taxation will change, and all jurisdictions will need to adjust their tax systems and rules. As for the revenue impact, it will depend on the parameters being set, the rules to be made, and crucially, how different governments and businesses respond to them.


UAE’s overall competitiveness has never been based on taxation alone. It’s about ensuring a conducive environment for businesses and entrepreneurs to thrive as an international hub. Trust, lifestyle and geography are ultimately what makes UAE an attractive place for substantial economic activities. UAE will be keen to be seen as part of the global system rather than a tax haven.


Thoughts:

Countries needs to support a multilateral consensus-based solution that is anchored on sound economic principles, promotes tax certainty, and ensures a level playing field across all jurisdictions.

However, the new rules should not inadvertently weaken the incentives for businesses to invest and innovate. Otherwise, countries will all be worse off, fighting over share of a shrinking revenue pie.

globaltax g20 g7 minimum corporate tax corporatecompliances corporatetaxinuae abudhabi uae

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