Corporate Tax

OECD reaches company tax deal after Eire approves

The Organization for Economic Cooperation and Development announced a major breakthrough in corporate tax rates on Friday after years of disagreement.

The group of developed nations has agreed on a worldwide minimum tax rate of 15% for companies. This represents a huge shift for smaller economies like the Republic of Ireland, which have largely attracted international companies due to a lower tax rate.

“The groundbreaking deal, signed by 136 countries and jurisdictions representing more than 90% of global GDP, will also redistribute more than $ 125 billion in profits from around 100 of the world’s largest and most profitable MNEs to countries worldwide, to ensure that these companies pay a fair share of taxes wherever they operate and generate profits, “the OECD said in a statement on Friday.

US Secretary of State Antony Blinken (frontL) speaks about former OECD Director of the Council and the Secretariat of the Executive Committee (SGE / CES) Silvia da Rin Pagnetto (frontR) during a closing session at the Ministerial Council meeting of the Organization for Economic Cooperation and Development in Paris in October . 02/06/2021.

Patrick Semansky | AFP | Getty Images

The breakthrough comes after some changes are made to the original text, in particular that the 15% rate will not be increased later and small businesses will not be affected by the new rates.

This helped Ireland – a longtime opponent of corporate tax hikes – implement the plan.

Hungary, another long-standing skeptic about a global tax treaty, also changed its mind after being assured there would be a long deadline for implementation.

Countries now need to work out some prominent details for the new deal to take effect in 2023.

The agreement is “an achievement in economic diplomacy that will only be achieved once in a generation,” said US Treasury Secretary Janet Yellen in a statement.

Yellen applauded the many nations that “have decided to end the race to the bottom in corporate taxation” and expressed hope that Congress will use the reconciliation process to quickly put the deal into practice in the US

“International tax policy is a complex subject, but the obscure language of today’s agreement belies how simple and comprehensive it is to operate: when this agreement comes into effect, it will be much easier for Americans to find a job in the global economy. Earning a living or scaling a business, “Yellen’s statement reads.

What is in the agreement?

The deal marks a shift in tax policy as it not only mandates a minimum tax rate for businesses, but also forces businesses to pay taxes where they operate – not just where they are headquartered.

The exact formula for calculating companies’ debts in the various jurisdictions is a detail that has yet to be finalized.

The announcement by international leaders was also made in part due to the coronavirus pandemic, which again required fairer taxation as governments seek new sources of funding.

When he was elected in 2020, President Joe Biden made it clear that he wanted to tax the rich more to combat inequality in the United States

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