The Global Minimum Tax and its impact on Mauritius
L. Clensy Appavoo
The Global Minimum Tax (“GMT”) is now a reality as it has obtained the approval of some 133 countries across the world. This is a landmark proposal of John Bidden, President of the United States, which has first obtained the G7 approval , followed by the G20. Initial disagreement of the applicable has now been settled at 15%. Will such a measure affect the Mauritian jurisdiction is a question of importance and this article attempts to analyse the situation.
WHAT IS THE GLOBAL MINIMUM TAX?
GMT is a tax regime established by international agreement whereby countries adhering to the agreement would impose a specific minimum tax rate on the income of corporations subject to the respective jurisdictions’ tax laws. Each country would be entitled to the revenue generated by the tax. The agreement would prescribe a definition of “income”, a ‘taxable base’ and some other technical rules. The eventual objective of GMT is twofold: (1) first of all to increase the level of ‘direct taxation’ of Multinationals Enterprises (“MNEs”) and (2) to discourage nations from tax competition through lower tax rates that result in corporate profit shifting to their locations and tax base erosion in the countries where the MNEs originate.
The rate of the GMT is 15% and the OECD estimates that it will yield some USD 150 billion in additional tax revenue on an annual basis
It is evident that the GMT will not be self-implementing . Each country will need to adopt this new taxation rule in its own local laws. It therefore makes no doubt that there will be immense pressure on small jurisdictions like Mauritius to follow the rules as it has been for the adoption of OECD BEPS, MLI and other tax governance issues.