Corporate Tax

World company tax treaty agreed

In this December 13, 2017 file photo, Federal Reserve Chair Janet Yellen speaks during a press conference following the Federal Reserve Open Market Committee meeting in Washington. (AP Photo / Carolyn Kaster, File). Secretary of State Yellen hailed the tax treaty as a victory for US families and international companies.

Leigh Thomas, Reuters, Paris

According to the Organization for Economic Co-operation and Development, 136 countries have reached an agreement that sets a global minimum tax rate for companies.

After Ireland, Estonia and Hungary joined the elusive agreement, a global milestone agreement was finally struck to ensure that large companies pay a minimum tax rate of 15 percent and make it harder for them to avoid taxes.

The deal aims to end a four-decade “race to the bottom” by governments that have tried to attract investment and jobs by lightly taxing multinational corporations and allowing them to look for low tax rates.

Negotiations have been going on for four years and went online during the pandemic, with support for a deal from U.S. President Joe Biden and the cost of the COVID-19 crisis have given him an extra boost in recent months.

The deal aims to prevent large companies from posting profits in low-tax countries like Ireland, regardless of where their customers are located.

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

The Paris-based Organization for Economic Co-operation and Development (OECD), which chaired the talks, said the deal would cover 90 percent of the world economy.

“Today’s agreement will make our international tax regulations fairer and work better,” said OECD Secretary General Mathias Cormann in a statement.

“This is a great victory for an effective and balanced multilateralism.”

Federal Finance Minister Olaf Scholz described this as “another important step towards greater tax justice”.

“We now have a clear path to a fairer tax system, in which big global players pay their fair share wherever they do business,” said his British counterpart Rishi Sunak.

With the ink barely drying on the agreement, some countries were already raising concerns about its implementation.

The Federal Ministry of Finance issued a statement calling for the interests of small economies to be taken into account and stated that the implementation date in 2023 would be impossible.

Poland, which has concerns about the impact on foreign investors, said it would continue to work on the deal.

At the heart of the deal is a minimum corporate tax rate of 15 percent, which allows governments to tax a larger proportion of the profits of foreign multinationals.

US Treasury Secretary Yellen hailed this as a victory for US families and international businesses.

“We have turned relentless negotiations into decades of increased prosperity – for America and the world. Today’s agreement is a once-in-a-lifetime achievement for economic diplomacy, ”Yellen said in a statement.

The OECD said the minimum rate would allow countries to generate around $ 150 billion (A $ 205 billion) in new revenue annually, while shifting taxation rights to more than $ 125 billion in profits to countries where big multinational corporations earn their income.

Ireland, Estonia and Hungary, all low-tax countries, dropped their objections this week as a compromise was reached on a deduction from the minimum rate for multinational companies with real physical business activities overseas.

However, some developing countries seeking a higher minimum tax rate say their interests have been marginalized to accommodate the interests of richer countries like Ireland, which refused to sign an agreement with a minimum tax rate of more than 15 percent.

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

While Kenya, Nigeria and Sri Lanka did not support an earlier version of the deal, Pakistan’s abstention came as a surprise, said an official briefed on the talks.

India also had concerns until the last minute but ultimately supported the deal, they added.

The OECD said the deal would next go to the G20 economic powers to be formally endorsed at a meeting of finance ministers in the US on October 13, and then at a G20 summit of heads of state and government later that month Italy to decide for final approval.

Some doubts remain about the US position, which depends in part on domestic tax reform negotiations in Congress.

Countries that support the agreement are due to add it to their law books next year so that it can come into effect from 2023, which many officials believe is extremely tight.

French Finance Minister Bruno Le Maire said his country would use his EU presidency in the first half of 2022 to translate the deal into law across the 27-member bloc.

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