Finance minister: OECD meddling in tax policy bad for small countries

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Keit Pentus-Rosimannus. Source: Siim Lõvi /ERR

Minister of Finance Keit Pentus-Rosimannus (Reform) said that OECD intervening in tax policy works to harm competition, which is especially unfortunate for small countries.

"Long-debated proposals for reforming the digitizing global economy have begun to take shape at the OECD. As it often happens, the initially simple plan of giving countries that consume the services of digital giants the right to tax them has been replaced by several new ones. The link between these new solutions and the original idea has become quite muddy in places," Pentus-Rosimannus said.

"Firstly, taxation of digital economy that was originally meant to concern GAFA (Google, Apple, Facebook and Amazon) has become a proposal for taxing the profits of the world's 100 largest groups, whether digital or traditional, sporting a complicated resolution and calculation mechanism," the minister explained.

Pentus-Rosimannus said that the currently proposed scheme would bring Estonia additional tax revenue of €10 million, while the whole of the EU would stand to gain €1 billion a year.

Another change would concern a global income tax minimum. "To put it bluntly – the aim of the proposal is to limit tax competition and tax policy choices between different countries. When has restricting competition ever amounted to anything good? I cannot think of a single long-term example. Such a limitation would clearly be constricting for small countries, and if healthy tax competition usually supports growth and innovation, this proposal moves in the opposite direction. Convenient for the whales but harmful for enterprise, international competition and job creation," Pentus-Rosimannus wrote.

She added that the global corporate income tax solution would mostly concerns groups that have Estonian subsidiaries the global sales revenue of which exceeds €750 million a year. "We might have 200-300 such companies. The proposed solution is hugely complicated right now, whereas it is even harder to see how such a scheme could benefit the economy in general. Headquarters subject to the minimum income tax rate would only number one or two in Estonia," the finance minister noted.

Pentus-Rosimannus pointed out that Estonia has applied for an exception for its corporate income tax system in recent years. "Not many countries have been ecstatic about the prospect. We have ramped up our negotiating efforts in recent weeks."

"We need to keep in mind that the OECD is not a legislative body, meaning that even if the current proposals pass, nothing will change automatically. However, things will get more complicated on the international arena," she said in closing.

Leaders of the G7 agreed on a global 15-percent corporate income tax on Saturday. Should the agreement be signed at the G20 meeting in July, Estonia will need to apply for an exception allowing it to postpone collecting income for a number of years. Estonia only taxes profit when it is paid out, which companies might not do every year.

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Editor: Marcus Turovski

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