Business expansion across state lines has its advantages and so does geographic reach beyond country borders. This is enabled through remote work and cloud computing technology, which create strategic geographic expansion opportunities for more organizations in industry sectors such as healthcare, real estate, and finance. These growth opportunities come with tax obligation considerations, however, and an entry into the growing global minimum tax discussion.
International Expansion Taxation
The Organization for Economic Co-operation and Development (OECD), supported by the government of Japan, has responded against Base Erosion and Profit Shifting (BEPS) with the development of the Global Anti-Base Erosion (GloBE) Rules. These rules propose a minimum level of income tax on multinational enterprise’s (MNE’s) income arising in each jurisdiction in which they operate. Specifically, the GloBE Rules are intended to combat profit-shifting tactics by implementing a global tax system that imposes a “top-up” tax for the difference between effective tax rates in a jurisdiction and a minimum rate. Any resulting top-up tax would typically be levied on the parent of the MNE. The United Nations Department of Economic and Social Affairs Financing states, “Causes of BEPS include inadequacies of domestic laws, insufficient controlled foreign company rules, transfer mispricing, and tax treaty abuses arising from hybrid mismatch arrangements.” While this framework will help ensure a more level playing field, the jurisdiction-by-jurisdiction approach creates complexities for international businesses.
GloBE Modeling Tool (BETA)
To help organizations estimate and analyze the impact of the global minimum effective tax rate, Bloomberg has designed the GloBE Modeling Tool, which authorized users (Bloomberg Tax subscribers, like PYA) can download. The tool computes the estimated top-up tax for each jurisdiction based on data the user enters, within the scope of the OECD agreement. The tool was developed to save time by automating and standardizing the structure of the effective tax rate.
The tool’s layout includes a multilateral approach, as MNEs often operate various service lines or subsidiaries within a particular nation. In its granular view, the tool closely considers computational components, such as asymmetric foreign currency gains or losses, and policy disallowed expenses, among other items used to arrive at a Net GloBE Income.
The tool, which is in its BETA form, helps determine the effective rate tax component under the GloBE Rules. It is well organized, with an overview at the forefront and strategically placed defining material at the end.
Other Considerations
The GloBE Modeling tool currently excludes some aspects of the GloBE calculation, such as special allocation rules, elections, credits, and similar topics. With 135+ countries in collaboration with OECD, the aim is to recapture some of the $240 billion lost annually due to multinational companies’ tax avoidance.
In response to the OECD’s strategy to address the main areas where it thinks companies have been most aggressively accomplishing this profit shifting, participating nations made their positions known. The Receita Federal, Brazil’s taxation authority, states, “The base erosion and profit shifting practices constitute a serious threat to fair competition, and generate negative impact on tax revenues.” Mexico and Singapore are among other participating countries that voice similar concerns.
Conclusion
If your organization is planning to implement strategic geographical expansion through a physical or digital presence, Bloomberg’s GloBE Modeling Tool may be of interest in reaching strategic tax management decisions. As a growing number of organizations expand to either provide or purchase goods and services across borders, such tools are essential to keeping your organization compliant at a global level.
Stay tuned for more international tax subject matter including tax credits, tax deferrals, expatriate exit taxes, and more.
If you would like to speak with a tax professional about international tax compliance, or need guidance related to this or any business advisory or tax planning and strategy matter, one of our executive contacts would be happy to assist. You may email them below, or call (800) 270-9629.
