Landmark global corporate tax deal finally finds agreement

  • The deal will even be a playground for American workers – Biden
  • Ireland, Estonia and Hungary drop opposition to deal
  • Global deal ensures large corporations pay 15% minimum tax rate

PARIS, October 8 (Reuters) – A group of 136 countries on Friday set a minimum global tax rate of 15% for large corporations and sought to make it harder for them to avoid tax in a landmark deal which, according to US President Joe Biden, leveled the playing field.

The deal aims to end a four-decade “race to the bottom” by setting a floor for countries that have sought to attract investment and jobs by taxing multinational companies lightly, allowing them to seek lower rates. low taxation.

Negotiations have been going on for four years and while the costs of the coronavirus pandemic have given them added momentum in recent months, a deal was not reached until Ireland, Estonia and Hungary dropped their opposition and have registered.

In addition, the agreed 15% floor is well below a corporate tax rate that averages around 23.5% in industrialized countries.

“The establishment, for the first time in history, of a strong global minimum tax will finally be a level playing field for American workers and taxpayers, as well as the rest of the world,” Biden said in a statement.

The deal aims to prevent large companies from making profits in low-tax countries like Ireland regardless of where their customers are located, an issue that has become increasingly urgent with the growth of businesses. giants of “Big Tech” who can easily do business across borders.

Of the 140 countries involved, 136 supported the agreement, with Kenya, Nigeria, Pakistan and Sri Lanka abstaining for now.

The Paris-based Organization for Economic Co-operation and Development (OECD), which is leading the talks, said the deal would cover 90% of the global economy.

“We have taken another important step towards more tax justice,” German Finance Minister Olaf Scholz said in a statement sent to Reuters.

“We now have a clear path to a fairer tax system, where the world’s big players pay their fair share wherever they do business,” said his British counterpart Rishi Sunak.

But with the ink barely dry, some countries were already worried about the deal’s implementation.

Switzerland’s finance ministry demanded in a statement that the interests of small economies be taken into account and said the implementation date of 2023 was impossible, while Poland, which worries about the impact on foreign investors said she would continue to work on the deal.

“INCREASED PROSPERITY”

At the heart of the deal is a minimum corporate tax rate of 15% and allows governments to tax a larger share of the profits of foreign multinationals. Read more

US Treasury Secretary Janet Yellen hailed it as a victory for American families as well as international businesses.

“We have turned tireless negotiations into decades of increased prosperity – both for America and for the world. Today’s agreement represents a unique achievement for economic diplomacy,” Yellen said in a statement.

The OECD said the minimum rate would allow countries to collect around $ 150 billion in new income per year, while taxing rights on more than $ 125 billion in profits would shift to countries where large multinationals earn. their income.

Ireland, Estonia and Hungary, all low-tax countries, dropped their objections this week as a compromise emerged on a minimum rate deduction for multinationals with actual physical business activities abroad.

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‘NO TEETH’

But some developing countries seeking a higher minimum tax rate say their interest was set aside to meet the interests of richer countries like Ireland, which had refused to sign a deal with a rate. minimum tax greater than 15%.

Argentina’s Economy Minister Martin Guzman said on Thursday that the proposals forced developing countries to choose between “something bad and something worse.”

While Kenya, Nigeria and Sri Lanka did not back a previous version of the deal, Pakistan’s abstention came as a surprise, an official briefed on the talks said. India also had qualms until the last minute, but ultimately backed the deal, they added.

There was also discontent among some campaign groups such as Oxfam who said the deal would not end tax havens.

“The tax devil is in the details, including a complex web of exemptions,” said Susana Ruiz, Oxfam’s tax policy officer.

“At the last minute, a colossal 10-year grace period was applied to the 15% global corporation tax, and further loopholes leave it virtually bite-free,” Ruiz added in a statement.

Companies with real assets and a payroll in a country can ensure that a portion of their income avoids the new minimum tax rate. The level of the exemption decreases over a 10-year period.

The OECD said the deal would then be submitted to the Group of 20 economic powers for formal approval at a meeting of finance ministers in Washington on October 13, and then at a summit of G20 leaders at the end of the year. months in Rome for final approval. .

Questions remain about the position of the United States, which depends in part on negotiations on national tax reform in Congress.

Countries that back the deal are supposed to put it in their law books next year so it can go into effect from 2023, which many officials say is extremely strict.

French Finance Minister Bruno Le Maire said Paris would use its presidency of the European Union in the first half of 2022 to translate the deal into law in the bloc of 27 countries.

Reporting by Leigh Thomas; Additional reporting by Christian Kraemer in Berlin, Elizabeth Piper and Mark John in London and David Lawder in Washington; Editing by Catherine Evans and Alexander Smith

Our standards: Thomson Reuters Trust Principles.

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