Estonia is still trying to reach an agreement on the OECD-led international tax reform which will set corporation tax to a global minimum of 15 percent.
Earlier this week, Minister of Finance Keit Pentus-Rosimannus (Reform) met with U.S. Secretary of Commerce Gina Raimondo and the Secretary-General of OECD Mathias Cormann to discuss the reform agreed in July.
The reform will create a digital tax for corporations with group revenue exceeding €20 billion, and a global minimum tax of 15 percent for corporations with revenue exceeding €750 million.
Estonia supports the digital tax but not the global minimum tax. In Estonia, there is no corporate income tax on retained and reinvested profits.
"Our system is not designed to promote tax avoidance. Hence, we expect the OECD to accept a few modifications. The negotiations are ongoing" Pentus-Rosimannus said.
"Estonia's corporate income tax revenue, as a percentage of GDP, roughly equals that of Germany and France, and surpasses the U.S. This proves the efficiency of our system."
Pentus-Rosimannus said Estonia wants to reach an agreement that would accommodate the country's "investment-friendly" corporate income tax system.
"The deal forged at OECD in July is not entirely acceptable to us. It is too vague, with a number of details that could prove harmful to a small open economy such as ours. We do however hope that by October we have resolved the matter in a way catering for Estonia's interests as well," she said.
The OECD plans to finalize the agreement in October 2021.
Estonia, along with EU member states Hungary and Ireland, is one of nine countries not to back the global minimum tax agreement.
In August, ERR reported the Ministry of Finance said the U.S, European Union and EU member states are pressuring the Estonian government to change its mind.
At the time, Kallas said Estonia's tax system could remain unchanged and a compromise found.
"The advantage of our system is that our tax system is simple and transparent. And we do actually collect corporate tax, we are not a tax haven, everyone understands that, but we have other rules. And we are discussing how we can maintain this system," the prime minister said.
Estonia's tax system
In Estonia, there is no corporate income tax on retained and reinvested profits.
This means that Estonian resident companies and the permanent establishments of foreign entities (including branches) are subject to 0 percent income tax for all reinvested and retained profits and a 20 percent income tax only for all distributed profits (both actual and deemed).
Source: Invest in Estonia
Editor: Helen Wright