Corporate Tax

World minimal corporate tax fee settlement reached

The Organization for Economic Cooperation and Development (OECD) announced on October 8, 2021 that its members had agreed on a minimum global corporate tax rate of 15% effective from 2023. A key factor in closing the deal was helping Ireland and other small countries that used low corporate tax rates as an incentive for large companies to relocate from higher tax jurisdictions.

“The groundbreaking deal, agreed 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 [multinational enterprises, or multinational corporations] to countries around the world to ensure that these companies pay a fair share of taxes wherever they operate and make profits, “the OECD said in its statement.

OECD agrees on global minimum corporate tax rate

  • The rate is 15% and will not be increased.
  • Companies have to pay taxes wherever they operate, not just in the country of their headquarters.
  • Details on the distribution of taxes to the jurisdictions must be specified.
  • The deal is slated to take effect in 2023.

Important reservations of the deal

Essential aspects of the agreement are that the minimum rate of 15% will not be increased in the future and will not apply to small businesses. The former was crucial to Ireland’s approval. Another longstanding opponent of such an agreement, Hungary, agreed after receiving assurances that the implementation deadline would be long.

In addition, the agreement will force companies to pay taxes where they operate rather than where they are based or where they are headquartered. The precise method of determining how MNEs will apportion their tax payments among the different jurisdictions in which they operate remains to be determined.

Celebrated by the Biden administration

The von Biden government plans to hike corporate taxes as a partial payment for the massive surge in federal spending since the outbreak of the COVID-19 pandemic. The OECD corporate tax deal is therefore a very positive development from the administration’s point of view.

In a statement, US Treasury Secretary Janet Yellen described the deal as a “unique achievement in economic diplomacy” that “will end the race to the bottom in corporate taxation.” Expressing hope that Congress will use the reconciliation process to make the agreement effective in the United States, she claimed, “When this agreement goes into effect, Americans will find the world economy a much easier place to get a job to find a living or scale a business. “

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