Türkiye is set to join a growing list of countries implementing a minimum corporate tax on multinational companies, with legislative preparations for the new regulation nearing completion, the country's economy chief said Tuesday.
Treasury and Finance Minister Mehmet Şimşek stressed global efforts and emphasized that the adoption would help prevent other countries from claiming taxes that could be rightfully due to Türkiye.
"It is inevitable to implement regulations for collecting a minimum corporate tax from multinational companies operating in Türkiye. Otherwise, the taxes not collected by our country could be claimed by another country," Şimşek told Anadolu Agency (AA).
In 2021, approximately 140 countries under the Organization for Economic Co-operation and Development (OECD) reached a landmark agreement for a 15% global minimum tax. The so-called Pillar 2 agreement aimed to halt a downward spiral of competitive corporate tax cuts by countries to attract investment and shift profits to their jurisdictions by multinational firms.
Going live this year, the global minimum aims, in particular, to discourage big multinationals from booking profits in low-tax countries.
"With the agreement, it was envisaged that branches, subsidiaries and workplaces of multinational companies with annual consolidated revenues exceeding the threshold of 750 million euros ($817 million), located in countries with low taxation, would be subject to a minimum corporate tax rate of 15%," said Şimşek.
"Over 30 countries, primarily from the European Union, have legislated this tax to take effect on 2024 earnings," he explained.
The OECD, which has shepherded the deal from negotiation through to implementation, has said the global minimum would narrow the average difference between rates in tax havens and other countries by half, from 14 percentage points to 7 points after it is implemented.
As a result, where multinationals invest abroad is likely to be increasingly driven by such things as workforce education and infrastructure rather than which location can reduce their overall tax bill, according to the organization's estimated economic impact.
Şimşek elaborated on the tax collection process under the new regime.
"If the corporate tax paid by a multinational company's subsidiary in a given country is below 15%, the countries that have legislated the minimum tax can claim the difference," he said.
The primary right to collect the additional tax lies with the country where the company operates, he added.
"If there is no minimum corporate tax implementation in this country, the country where the company's headquarters is located can collect this tax. If there is also no minimum corporate tax implementation in that country, the tax can be collected by a third country where companies belonging to the same group are located," Şimşek explained.
"The model aims to ensure that the earnings of multinational companies are subject to a 15% tax burden in all cases."
Countries that do not implement the global minimum risk transferring their taxation rights to others, said Şimşek, stressing accelerated legislative efforts globally.
To retain its taxation rights, he stressed it was unavoidable for Türkiye to legislate the regulation. Otherwise, the taxes it fails to collect will be claimed by another country.
He stated that efforts were underway to introduce the practice, and preparations were in the final stages.
Approximately 80,000 companies with foreign capital operate in Türkiye, including 2,134 whose main operations are abroad, according to Şimşek.
"Only about 2.5% of these multinational companies exceed the 750 million euro threshold. We are exploring alternative models to protect and utilize the tax incentives these companies receive. Our ministry is collaborating closely with the Ministry of Industry and Technology to develop alternatives that will continue to encourage investment in our country," he said.
While about 36% of corporate profits are currently estimated to be taxed at less than 15%, only 7% is expected to be below that threshold after the global minimum is in place, the OECD said.
Globally, governments are expected to raise an extra $155 billion-$192 billion per year in corporate tax income, an increase of 6.5%-8.1%, according to the Paris-based organization.
