It was hailed as a historical breakthrough when it was announced that the G7 finance ministers has agreed on a global minimum rate for corporate tax of 15% to ensure the largest multinational companies pay their fair share. Subsequent to the G7 announcement, Paris-based OECD had backed the agreement with its 130 member countries representing more than 90% of global GDP, laying its stake on a potential estimate of $150 billions of additional global tax revenues annually derived from a minimum 15% global tax yield. In amidst this G7 ‘clothing a hard-nosed revenue-raising exercise in the language of progressive principle’, there are practical issues.

The reallocation of super profits (amount in excess of 15% over the lower tax rate paid) amongst the various jurisdictions that a MNC operates in will definitely be contentious and the road to an agreement will be long and winding, to say the least. The question is how the proposal will work in practice and perhaps the basic step would be to start with the definition of “profit” which it itself is not defined. To add complexity to its execution, the proposed scope targets business-to-consumer profits and not business-to-business profits.

In addition, only companies with turnover > EUR 750 millions (with only the shipping industry exempted) will be impacted under this proposal. This comes the challenge of the use of differing accounting standards by MNCs –IFRS or US GAAP as the basis upon which both profits and turnover will vary. MNCs will face the uncertainty of whether you will be in or out of this “elite” list, or worse if you happen to be on the line, then your fate will hang on the swing.

All businesses need some form of stability, certainty and clarity. Running a global business is beyond running a successful products or services, the regulatory regime where it operates has a huge impact on the underlying business model and its sustainability. The other question will be how would this new proposal impacts the existing BEPS framework which was started in 2013 – will it contradicts, supplements or supersedes its predecessor. It will still be a long road ahead before the mist is cleared but hopeful this new proposal will answer some of the questions that companies is seeking – stability, certainty and clarity rather than otherwise.