Government defends decision to ignore global minimum tax rate for MNCs

•  Cites possible impact on FDIs; urges need for “space” as a developing nation  

By Nishel Fernando
The government defended its decision not to sign the proposed establishment of 15 percent global minimum tax rate on multinational corporations (MNCs) citing possible impacts on Foreign Direct Investments (FDIs) into the country.

On 1st of July, 130 countries that are members of Paris-based Organization for Economic Cooperation and Development’s (OECD)Inclusive Framework on BEPS agreed to endorse a statement establishing a global minimum tax rate of at least 15 percent for MNCs. 

Later, two other countries signed the proposal, leaving Sri Lanka among seven other member nations who are yet to endorse the statement.The other six countries are Estonia, Hungary, Kenya, Ireland, Barbados and Nigeria.
“We didn’t sign on, because it inhibits our ability to grant any tax concession for foreign firms to attract FDIs into the country.For an example, we need to provide certain cooperate tax benefits for Colombo Port City project. As a developing nation, we need some space,” Secretary to the Treasury Sajith Attygalle told Mirror Business.

According to OECD’s Centre for Tax Policy and Administration, Deputy Director, Grace Perez-Navarro, all seven countries that have yet to sign onto the Inclusive Framework’s statement” remain constructively engaged.

However, Attygalle noted that Sri Lanka is unlikely to endorse the 15 percent global minimum tax anytime soon.
“In order to bridge the gap between savings and investments in the country, we need FDIs. If we graduate to another level, we can think about it, “he elaborated.

Some details of the global minimum corporate tax isyet to be finalised, including the rate of the minimum tax – currently defined as “at least 15 percent”.

The G-20 Finance Ministers last Saturday endorsed the plan at a meeting. A final decision is expected to reach at the G-20 meeting of Presidents and Prime Ministers which is to be held in late October. The implementation of 15 percent global minimum tax is expected as early as 2023.

Some analysts cautioned that hold-out nations may face isolation pointing out that even the well-known tax- havens such as Bermuda, the Cayman Islands and the British Virgin Islands endorsed the global minimum tax rate. 

 The U.S. Treasury Secretary Janet Yellen recently stressed that the proposal would end a “self-defeating international tax competition” in which countries have for years lowered their rates to attract companies.  However, she noted that it had been “a race that nobody has won. What it has done instead is to deprive us of the resources we need to invest in our people, our workforces, and our infrastructure.”