Kazakhstan is exploring the implementation of a global minimum tax for multinational corporations.
Kazakhstan is exploring the introduction of a so-called global minimum tax on profits for multinational corporations (MNCs). This information comes from a response by the Committee of State Revenues (CSR) to an inquiry from a correspondent at inbusiness.kz via the e-otinish electronic platform regarding whether the country plans to implement this tax tool for MNCs operating in Kazakhstan through offshore jurisdictions. This tax was previously recommended as part of the second element (Pillar 2) of the global tax reform proposed by OECD countries.
"Pillar 2 is one of the tools of the Organization for Economic Cooperation and Development (OECD) aimed at combating base erosion and profit shifting (BEPS). Pillar 2 is designed to ensure that multinational corporations (MNCs) pay a specified tax rate on intra-group transactions in the jurisdictions where they operate. The Pillar 2 rules apply to MNCs with annual consolidated revenues of €750 million. Specifically, Pillar 2 provides for additional taxation of MNC profits if the effective tax rate (ETR) in the jurisdictions where they operate is less than 15%," the CSR explained.
According to tax officials, Pillar 2 was aimed at neutralizing the effects of aggressive tax planning by large corporate groups by establishing a minimum tax level in the jurisdictions where they operate and earn profits, as well as reducing tax competition among countries. This tax tool consists of the Global Anti-Base Erosion Rule (Globe) and the Subject to Tax Rule (STTR), as clarified by the Ministry of Finance's department.
"In the Republic of Kazakhstan, the Pillar 2 rules are still under study. After the review, and if a decision is made regarding their implementation, the necessary amendments and additions will be made to the Tax Code of the Republic of Kazakhstan," the committee of state revenues noted.
At the same time, the relevant government agency reminds that matters related to changes in tax legislation, including the introduction of new taxes, fall under the purview of the Ministry of Economy.
The CSR also provided reference information that to date, Pillar 2 has been implemented into legislation or is under discussion in several OECD countries, such as South Korea, Singapore, the United Kingdom, and the Netherlands.
It is worth noting that many large companies or groups operate in Kazakhstan from tax havens in the Netherlands, Luxembourg, Singapore, the UAE, and other offshore jurisdictions with which agreements on the avoidance of double taxation have been concluded, thus paying a small portion of the profits earned in the country to these states with minimal tax rates.
Furthermore, it should be noted that Kazakhstan is currently experiencing a significant budget deficit and a shortfall in tax revenue. Interestingly, 10 years ago, the government planned to develop a comprehensive set of measures for the deoffshorization of the economy. Notably, at the beginning of October, the Russian Ministry of Finance proposed not to join the global minimum tax.