Estonia joins comprehensive income tax reform


The declaration being prepared at the OECD concerns large global companies and does not change the current tax regime for Estonian companies. As a next step, Estonia is now entering close negotiations with EU member states and the European Commission to protect Estonia’s interests in developing an EU directive implementing the agreement. of the OECD.

“The Estonian corporate tax system has been one of the cornerstones of the international competitiveness of the Estonian business environment, which must be firmly protected. As Estonia opposed the introduction of a global minimum tax, we conducted intense negotiations throughout the summer to achieve a situation where this global tax would affect Estonian entrepreneurs as little as possible. Following the successful negotiations, the minimum tax will not change anything for most Estonian entrepreneurs and will only apply to subsidiaries of large international groups, ”Prime Minister Kaja Kallas explained.

“At the same time, the taxation of digital giants has long been a problem. However, such a digital tax can only work if all countries have a similar approach towards tech giants, as digital services know no borders. The large digital business tax affects groups with a turnover of 20 billion dollars and therefore does not affect any business in Estonia, ”Kallas said.

The Prime Minister explained that the tax environment for large multinational companies is changing anyway, regardless of Estonia’s decisions. “We therefore adhere to the global tax agreement. By actively making proposals and vigorously defending our positions, we have the best opportunities to ensure that Estonia’s business environment and fiscal policy continue to work in the interests of a better future for all of us. . ”

Tomorrow, October 8, there will be a meeting of the 140 countries involved in the reform, with a view to approving the two-part tax package. The first pillar of the reform concerns the tax on group profits with a turnover of 20 billion, or so-called digital tax, which Estonia supports.

The second pillar of the reform concerns an overall minimum corporate income tax of at least 15 percent. The minimum tax would only apply to groups with a consolidated turnover of at least 750 million euros per year. The OECD wants to achieve political consensus tomorrow in favor of this proposal, and the countries joining the reform promise to develop and implement the necessary laws in 2023.

If the effective tax rate of a subsidiary operating in a country other than the head office of the group is less than 15 percent, the country of the head office has the right to impose itself the difference between the effective tax and the ‘minimum tax, which means that in the case of Estonia, these subsidiaries may be taxed by another country.

In order to protect its interests, Estonia has conducted intense negotiations to give local subsidiaries of international groups the longest possible tax deferral period, which would allow companies more flexibility in deciding their cash flow. throughout the business cycle, rather than forcing us to tax immediately profits. As a compromise, a period of four years was proposed.

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