• Friday, July 12, 2024
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FG tax shift on multinationals unlikely until 2022

Nigeria’s non-oil income outpaces oil first time since 1973

US Treasury Secretary Janet Yellen on Sunday said that a newly endorsed mechanism to allow more countries to tax large, highly profitable multinational companies may not be ready for consideration by lawmakers until spring 2022.

Yellen told a news conference after a G20 finance, leaders meeting in Venice, Italy, that the OECD re-allocation of taxing rights was on a “slightly slower track” than a global corporate tax of at least 15 percent as part of a tax deal among 132 countries.

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G20 finance ministers and central bank governors endorsed the deal over the weekend, but questions remain over the ability of US President Joe Biden’s administration to persuade a deeply divided Congress to ratify the changes.

Recall, that the vice president, Yemi Osinbajo recently declared that the Nigerian government was ready to introduce a new mechanism to widen the tax net.

The Nigerian government was set to utilize this legal provision by taxing profits made in the country by global technology and digital firms such as Google, Twitter, Facebook, Microsoft, Netflix, among others.

The mechanism involves the collection of taxes on the Nigerian income of global technology giants not based in the country, but with significant economic presence. According to Section 4 of the Finance Act 2019, “the finance minister, may by the order of the president, determine what constitutes the significant economic presence of a company other than a Nigerian company”.

Notably, total tax revenue increased by 59.1 percent to N5.3 trillion between 2016 and 2019. However, due to COVID-19 and the resultant effects on the economy, tax revenues declined by 5.8 percent to N4.9tn in 2020, driving an urgent need to broaden the tax base.

Over the years, efforts have been made to widen the tax net, including the creation of the Voluntary Assets and Income Declaration Scheme (VAIDS), which was an attempt to bring more people into the tax net, and hiking the VAT rate from 5.0 percent to 7.5 percent.

Yellen is expected to face questions from G20 finance leaders at a meeting in Venice, Italy, this week about how the Biden administration will win legislative approval to increase the US corporate minimum tax rate and implement new rules that would allow more countries to tax large, highly profitable multinational corporations.

While G20 finance officials discuss next steps, such as whether the minimum tax rate should exceed 15 percent, some are casting a wary eye towards Capitol Hill, where Republicans and business groups are fighting Democratic President Joe Biden’s proposed tax increases on corporations and wealthy Americans.

Republican Senate leader Mitch McConnell on Tuesday vowed to try to block a partisan tax bill, promising a “hell of a fight for what this country ought to look like in the future.”

The divisions could put Yellen in a tight spot, because she has been a driving force behind the international push for a 15 percent-plus global minimum tax and a new mechanism allowing the profits of large multinational firms to be partly taxed by countries where they sell products and services, regardless of where their headquarters and intellectual property reside.

Yellen’s comments suggest a two-step process for implementing the OECD tax deal, with the global minimum tax moving first.

She said she hoped to include provisions to implement the so-called “Pillar 2” minimum tax into a budget “reconciliation” bill this year that Congress could approve with a simple majority, potentially without Republican support.

The “Pillar 1” portion of the agreement would end unilateral taxes on digital services in exchange for a new mechanism that would allow large profitable companies – including technology giants such as Google (GOOGL.O) and Facebook (FB.O) – to be taxed in part by countries where they sell products and services, rather than just those hosting their headquarters or intellectual property.

This will require a multilateral tax agreement that will take time to negotiate, a Treasury official said.

“Pillar 1 will be on a slightly slower track. We’ll work with Congress,” Yellen said when asked whether a two-thirds majority would be needed in the U.S. Senate, which is normally the requirement for international treaties.

“It may be in ready in the spring of 2022 and we’ll try to determine at that point what’s necessary for its implementation,” Yellen said.

It was unclear how the 2022 timing would affect the withdrawal of unilateral digital services taxes. Yellen made clear that European Union countries had agreed to withdraw such taxes when asked how she viewed an expected European Commission proposal for a new digital levy to fund pandemic relief.

“It’s really up to the European Commission and the members of the European Union to decide how to proceed, but those countries have agreed to avoid putting in place in the future and to dismantle taxes that are discriminatory against US firms.”

Yellen was slated to travel to Brussels later on Sunday to discuss the digital levy and a range of other issues with the European Commission president Ursula von der Leyen and the Eurogroup headed by Irish Finance Minister Paschal Donohoe.

Ireland is among the countries yet to sign up to the international tax deal, along with Hungary, Estonia, Kenya and Nigeria.

The visit provides the opportunity to explain the benefits of inclusion in the agreement, Yellen said.

“In some cases there are specific technical issues that can be addressed and where possible we will discuss and try to bring them aboard,” she added.