One of the most revolutionary moments in international taxation has been reached with the introduction of a global minimum tax at 15%. This effort is initiated by the OECD’s Inclusive Framework on Base Erosion and Profit Shifting to bring an end to aggressive tax avoidance and create a fairer environment for global tax. For accounting firms in the UK, knowledge of this policy is an essential requirement to inform its clients and assimilate its implications. This guide unpacks the essentials and provides actionable insights.

What is the 15% global minimum tax, and why does it matter?  

The global minimum tax is the pioneering effort to ensure multinationals pay a tax of at least 15% of their profit irrespective of the location of their headquarters or where they operate. The new law will end the arms race in cutting corporate tax rates of countries, thereby addressing the long-standing issue of tax competition.

This tax matters because it: 

• It helps in curbing profit shifting to low-tax jurisdictions.
• It levels the playing field for businesses worldwide.
• It also gives governments extra tax revenue, estimated to be £125 billion per annum. 

The policy will redefine how UK-based firms working with international clients advise on tax planning.

How does the global minimum tax work?  

It works off primarily with two critical rules:

Income Inclusion Rule (IIR): The parent companies have to pay the difference if subsidiaries in low-tax jurisdictions pay less than 15%.

Undertaxed Payment Rule (UTPR): Applied whenever the IIR cannot be applied, to redistribute taxes to other jurisdictions.

These rules aim at big MNCs whose annual revenues exceed EUR 750 million; most jurisdictions, including the UK, are going to see an effective start in 2024. Accounting firms must be aware of these mechanisms to advise clients on compliance.

Who will feel the impact of a global minimum tax of 15%?

This tax will impact most significantly in:

• Multinationals: Especially those operating out of low-tax jurisdictions.
• High-profit business: Especially technology and pharmaceutical, where intellectual property changes profits to tax havens.
• UK businesses: Especially those with global operations or subsidiaries in countries where tax rates are less than 15%.

SMEs are exempt, but firms assisting MNCs must be prepared to face a concomitant increase in demand for compliance and advisory services.

Why should UK accountancy practice care about the global minimum tax?

The global minimum tax policy is an issue that brings several challenges and opportunities to UK accountancy practice. 

Challenges include:

• Complex compliance landscape: New rules mean multi-jurisdictional tax calculations must be adapted.
• Increase in reporting requirements: Groups will need detailed information on their global operations.

Opportunities include:

• Growth in advisory: Positioning groups as global tax compliance experts.
• Digital solutions: Using technology to help simplify reporting and compliance

What steps can accounting firms take to prepare for the global minimum tax?  

Preparation is key to managing the complexities of this new tax regime. Firms should consider the following strategies:  

Invest in technology and training:  

• Adopt tax software with global compliance capabilities.  
• Train staff on the nuances of international taxation.  

Strengthen cross-border expertise:  

• Build partnerships with tax advisors in other jurisdictions.  
• Stay updated on OECD and UK-specific developments.  

Review client portfolios:  

• Identify clients affected by the policy.  
• Develop tailored strategies for compliance and minimising tax liabilities.  

How will the global minimum tax change tax planning strategies?

The era of aggressive avoidance is over. The firm has to shift towards sustainable tax planning in all of the following areas:

• Substance over form: Operations should align with economic activities within each jurisdiction.
• Alignment at a global level: Tax policies of all countries of operation to be coordinated properly.
• Transparency: Open reporting with avoidance of penalties.

Would a global minimum tax be good news for UK accountancy?

Despite the challenges, a 15% global minimum tax might aid the UK accountancy sector in the following ways:

• Higher expertise: Position the UK firms as leaders of global tax advisory practice
• Higher revenues: Increase new services on compliance and reporting
• Make firms innovate: Forcing firms to get involved with complicated tax technologies.

With such opportunities, the industry is sure to flourish in today’s fast-paced tax landscape.

What next for the future of global taxation?

The global minimum tax is just the beginning of a shift toward more equitable, transparent, and fair taxation. In this respect, firms should get ready for:

• More cooperation: Between countries with the aid of closing loopholes.
• Digital tax reforms: Addressing issues thrown up by digital businesses.
• Ongoing adjustments: To ensure that the policy remains effective in an era of changing global economies.

UK accounting firms will have to be visionary and proactive in a highly dynamic environment.

Conclusion

The 15% global minimum tax is a landmark shift in international taxation with significant implications for UK accounting firms and their clients. If the mechanics of the new tax are understood, if preparation for compliance is made, and the opportunities that now arise through the new tax are seized on, firms can turn this challenge into a growth opportunity. 

We, at Integra Global Solutions, provide expert support to accounting firms and guide them through the complexities of the tax landscape. With our bespoke solutions, you can be assured of compliance, reduced risk, and exploration of new opportunities. Discover our services and start your journey toward thriving in this new era of global taxation.