Treasury promoting uniform 15% companies tax rate

For generations, Switzerland has been a magnet for money from all over the world because its corporate tax rate was only 12%. Last week, that ended. Switzerland has decided, through a referendum, to adopt the global minimum corporate tax rate of 15%, which will come into force at the beginning of 2024.

What is happening in Israel? The discussion about adopting the global rate came to a head in June 2021, when then-Finance Minister Avigdor Lieberman announced that Israel would sign up to the Organization for Economic Co-operation and Development plan to tax the digital economy. Shortly thereafter, Bennett Lapid’s government confirmed the adoption of international principles, including a 15% minimum corporate tax rate.

Since the change of government, the matter appears to have been dropped entirely, but now, Globes has been informed on behalf of Finance Minister Bezalel Smotrich that he has confirmed Israel’s commitment to adopting the plan. “The minister is coordinating with his professional staff and is holding discussions with the Department of Economists and the Israel Tax Authority on this matter. The minister also endorsed Israel’s commitment in principle to the plan in his meeting with the Secretary-General of the Organization for Economic Cooperation and Development during the organization’s ministerial council meeting.”

The OECD’s plan has two main components. The first enables countries outside the United States to benefit for the first time from the profits of big tech companies like Google, Meta, and Apple. Companies will be taxed according to the location of their customers, not according to where they are registered.

The second component, which is more complex in terms of legislation, is a minimum corporate tax rate of 15% on companies with annual revenues greater than $750 million, by enabling countries to collect the difference up to that rate if a “stray” state decides to offer a low tax on companies. Through this mechanism, a leverage is created on that country, not to the loss of potential revenue for other countries, and in fact a global corporate tax rate is generated.

The agreement on a single corporate tax rate represents a huge change for small economies. For years, some of them have actually served as tax shelters, offering low-to-negligible tax rates.

For Israel too, this would be an important change, as many multinational companies operating here enjoy very low tax rates, which can reach 6%, under the Capital Investment Promotion Law. If the OECD plan is adopted, companies such as Intel, which pay tax rates of less than 10% for building factories in the periphery, would be required to pay a minimum rate of 15%.

case. “There would be no negative impact on Israel from adopting the 15% lower global tax rate plan, assuming that the plan is adopted by other countries as well,” says Benjamin Tuvey, senior partner at the law firm Shekel & Co. and director of the International Tax Department. Tax rates of 6% are exceptional. Most tech companies are located in the middle of the country, where the best tax rate is 12%. A 3% increase in the tax rate with little impact.”

It should be noted that Israel does not have to change its tax laws in order to agree to be included in the global 15% tax plan. If they continue to give tax benefits and lower tax rates under the Capital Investment Promotion Act, then in any case the multinational corporations will be required to offset the tax in their countries of residence, which means that other countries will benefit from the revenue instead.

Published by Globes, Israel business news – en.globes.co.il – on June 29, 2023.

© Copyright Globes Publisher Itonut (1983) Ltd., 2023.