Maltese global tax expert Kristine Attard said that the USA’s departure from a global tax deal targeting multinational profits represents a major weakening of the original OECD Pillar Two framework.
Ms Attard, the Director of Tax and Global Mobility for CLA Malta, spoke to WhosWho.mt after the Organisation for Economic Cooperation and Development confirmed the US will be exempt from the agreement, which sets a minimum 15 per cent global minimum tax for large multinationals.
Although the US had originally signed up to the agreement, Donald Trump immediately rejected it after returning to office last year, voicing concerns that a foreign subsidiary of a US company could be taxed by another country on profits linked to the US.
Ms Attard said that the renegotiated agreement will introduce a tiered, side by side tax framework for large multinationals.
US-based multinationals will continue following US minimum tax rules and will be exempt from key OECD Pillar Two top-up taxes.
Meanwhile, multinationals based in the 150 countries, including Malta, which signed up to the agreement, will continue under the OECD/G-20 Pillar Two 15 per cent global minimum tax regime.
However, Ms Attard said that, from what she’s read, the minimum tax rate under the US rules is effectively lower than 15%.
"The carve out represents a major weakening of the original OECD Pillar Two framework and it dilutes the goal of a common global floor,” she said.
“It could encourage base erosion if non-US tax systems are less stringent.”
“Pillar Two was originally intended to create a consistent worldwide minimum tax rate so that large multinationals could not avoid tax by shifting profits to low-tax jurisdictions.”
“Exempting US groups from the core enforcement rules can mean that in practice some US profits will not face the same minimum tax as others, undermining the idea of a single, uniform global floor.”
She warned that the two-tiered system carries the risk of multinationals exploiting mismatches between the US system and other countries’ OECD-based system.
Ms Attard said she thinks the outcome will ultimately make the US more competitive as a base for large global corporations than the 150 countries which signed up to the OECD deal.
However, she said there are still benefits for Malta and other countries to remain part of the agreement.
“In my opinion, yes. It helps maintain a more predictable, coordinated global tax system and protects against tax fraud,” she remarked.
