Over 130 countries sign corporate minimum tax agreement
FRANKFURT, Germany (AP) – More than 130 countries have agreed on sweeping changes in the way large multinational companies are taxed to dissuade them from avoiding taxes by shifting their profits to countries with higher rates low.
Under the deal announced on Friday, countries would adopt a minimum global corporate tax of 15% on the largest companies, raising around $ 150 billion for government coffers when implemented.
US President Joe Biden has been a driving force behind the deal as governments around the world seek to boost revenues in the wake of the COVID-19 pandemic.
“Today’s agreement represents a unique achievement for economic diplomacy,” US Treasury Secretary Janet Yellen said in a statement. She said it would end a “race to the bottom” in which countries outbid with lower tax rates.
“Rather than competing on our ability to offer low corporate rates,” she said, “America will now be competing on the skills of our workers and our ability to innovate, which is a race. that we can win. “
The agreement between 136 countries was announced by the Paris-based Organization for Economic Co-operation and Development, which hosted the talks that led to it.
The agreement faces several hurdles before it can enter into force. US approval of related tax legislation proposed by Biden will be key, especially given the US is home to many of the largest multinational corporations. A rejection by Congress would cast uncertainty over the entire project.
The agreement is an attempt to address the ways in which globalization and digitization have changed the global economy. Along with the minimum tax, it would allow countries to tax a portion of the income of businesses whose activities, such as online retailing or web advertising, do not involve a physical presence.
Big US tech companies like Google and Amazon have backed the OECD negotiations. One reason is that countries would agree to withdraw individual taxes on digital services that they imposed on them in exchange for the right to tax part of their income under the global regime.
This means that companies would only deal with one international tax regime, not a multitude of different regimes in different countries.
“This agreement paves the way for a real tax revolution for the 21st century,” said French Finance Minister Bruno Le Maire. “Finally, the digital giants will pay their fair share of taxes in the countries – including France – where they produce.”
Ireland on Thursday announced it would join the deal, abandoning a low-tax policy that has led companies like Google and Facebook to locate their European operations there.
Although the Irish deal was a step forward for the deal, developing countries raised objections and Nigeria, Kenya, Pakistan and Sri Lanka said they would not sign.
Poverty alleviation and tax fairness advocates have said most of the new revenue will go to richer countries and offer less to developing countries that rely more on corporate taxes. The G-24 group of developing countries said without a larger share of revenue from reallocated profits, the deal would be “sub-optimal” and “unsustainable even in the short term.”
The deal will be taken up by the Group of Finance Ministers next week and then by G-20 leaders for final approval at a summit in Rome in late October.
Countries would sign a diplomatic agreement to implement the tax on companies that do not have a physical presence in a country but make a profit there, for example through digital services. This provision would affect around 100 companies worldwide.
The second part of the agreement, the global minimum of at least 15%, would apply to companies over 750 billion euros (864 billion dollars) and would be transposed into national law by countries according to rules models developed at the OECD. A complementary provision would mean that the tax avoided abroad would have to be paid in the country. As long as at least the major headquarters countries applied the minimum tax, the deal would have most of the desired effect.