Global Minimum Tax Imminent - Will Your Corporation Be Impacted?
Global Minimum Tax has a special effective tax rate (ETR) that is different from normal accounting ETR and requires a comprehensive understanding of the rules as well as extensive data extraction.
By Kelvin Yee, Director of International Tax, Deloitte Malaysia
The National Budget is set to be announced on February 24th, and one of the key areas of focus is the Global Minimum Tax (GMT). GMT is a new, universal tax system that will ensure that large multinational corporations (MNCs) pay a minimum tax rate of 15% somewhere in the world.
This tax system applies to MNCs that operate in at least two jurisdictions and have a minimum annual consolidated group revenue of €750 million in at least two of the past four fiscal years.
Malaysia is expected to implement GMT, along with other countries including the European Union, UK, Korea, Japan, Qatar, Indonesia, Switzerland, and others.
GMT has a special effective tax rate (ETR) that is different from normal accounting ETR and requires a comprehensive understanding of the rules as well as extensive data extraction.
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Global Minimum Tax and MNCs
MNCs will also need to file a separate return for GMT purposes, which will contain details on the group structure, ETR calculation, and top-up tax allocation.
For MNCs that will be affected by GMT, early preparation is essential. They should assess the impact of GMT on their operations and evaluate their data readiness in early 2023.
The GMT will also have a deep impact on mergers and acquisitions (M&A) as future profit projections will need to take into account the additional top-up taxes that may arise. Companies will need to model the right price to pay for a target acquisition and revise their approach on deal structuring, contractual protection, and tax due diligence.
From a financial reporting standpoint, the International Accounting Standards Board (IASB) has discussed how top-up taxes under GMT should be accounted for in financial statements.
The IASB has issued an Exposure Draft for proposed amendments to IAS 12 – Income Taxes, recommending a temporary exception from deferred tax accounting for top-up tax and requiring companies to provide new disclosures. Understanding GMT and its implications is crucial for companies to provide proper disclosure.
In conclusion, GMT is coming and companies need to be prepared for its implications on their cross-border M&A, cash flows, dividend payout, and tax position. Early preparation is essential to ensure compliance with GMT rules and to minimize the impact on the company's operations.