Estonia hoping for global minimum corporate tax exceptions

Keit Pentus-Rosimannus.
Keit Pentus-Rosimannus. Source: Siim Lõvi /ERR

Minister of Finance Keit Pentus-Rosimannus (Reform) told ERR that Estonia is hoping for an exception in terms of installment period or taxation threshold regarding the global minimum corporate income tax.

"We have sought a maximally long installments date for Estonian subsidiaries of international groups – which the proposal would mostly concern – in the minimum tax debate that would afford companies more flexibility in managing their cash flow throughout the economic cycle instead of obligating us to tax profits right away," Pentus-Rosimannus said.

"A solution has been proposed in which Estonian subsidiaries that sport modest turnover and profits would be exempt from the tax threshold at first. However, a very low threshold would render the clause virtually ineffectual and of no use to companies in Estonia," the finance minister pointed out.

The government discussed the summer agreement between OECD, G7 and G20 members the former is set to approve in late October at its cabinet meeting this week and will make a decision next Thursday.

Estonia has been one of nine countries, next to Ireland and Hungary in Europe, to oppose the global tax reform to introduce a 15 percent corporate income tax minimum for international corporations. Even though the proposal concerns groups with an annual sales revenue of over €750 million, problems could arise regarding their Estonian subsidiaries that do not distribute profit annually.

"Estonia's primary interest is for the global minimum income tax agreement to allow Estonia to move forward with its corporate tax system geared toward job creation and enterprise in general. To avoid a situation where development or investment in companies that are active here is limited in what is a global taxation flurry," Pentus-Rosimannus said.

She added that a large part of the tax agreement has been explained through the need to improve global tax discipline that is certainly a noble goal.

"That said, it remains a fact that Estonia already collects more corporate tax than several other countries pushing for the tax deal. Looking at the share of income tax in total tax revenue, it came to 6.1 percent in Estonia in 2018, while it was 5.6 percent for Germany, 4.6 percent for France and 4.1 percent for USA. The picture is similar if we look at corporate income tax receipt in GDP: 2 percent in Estonia, 2.1 percent in Germany, 2.1 percent in France, 1 percent in the U.S. This is OECD data. Estonia has a small and open economy that has no tax discipline problems, and it is important for us to retain our recent pro-business tax system," the finance minister explained.

"Even though such political statements by the OECD are not legislative in themselves, approving something on this level takes on a life of its own, which is why it is especially important we consider Estonia's interests before we make a decision," the minister emphasized.

Other countries not to join the initiative are Peru, Barbados, Saint Vincent and the Grenadines, Sri Lanka, Kenya and Nigeria.

Those who did not join are risking isolation as all major world economies and many countries until recently considered tax havens, such as Bermuda, the Cayman Islands and the British Virgin Islands, have, Reuters wrote in July.


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Editor: Marcus Turovski

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