Estonia to apply for exemption to establish income tax minimum

The so-called ''super ministry'' buildings in central Tallinn.
The so-called ''super ministry'' buildings in central Tallinn. Source: Siim Lõvi /ERR

G7 leaders agreed on Saturday to set a global corporate tax rate of 15 percent, and if the agreement is signed at the G20 meeting in July, Estonia must apply for an exemption that would allow corporate tax collection to be postponed for several years.

Estonia takes into account corporate income tax only when paying out profits, which may not take place every year.

As the income tax minimum only applies to groups whose annual sales revenue exceeds €750 million, at least according to the current plan, a problem may arise with the subsidiaries of large companies operating in Estonia, which do not pay out profits every year.

"If Estonia does not charge income tax every year, then in the parent company's view, Estonian income tax for that year will be zero and that country will have the right to tax the profit earned in Estonia at the minimum rate. If an Estonian company ever starts distributing profits, Estonia will also receive income tax," Helen Pahapill, deputy secretary general of the Ministry of Finance for tax and customs policy, said.

Estonia is requesting an exemption from the Organization for Economic Cooperation and Development (OECD), which would allow the tax not paid in Estonia to be considered paid.

"What we are doing in the OECD is that we are applying for an exemption for Estonia, Latvia and Georgia that would allow the tax not paid in Estonia to be considered paid. In other words, when the state of the parent company of the group starts to calculate its minimum tax liability for Estonia, then in an x number of years they would consider that the minimum tax has been paid in Estonia, although this may not be the case," Pahapill said.

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Editor: Helen Wright

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