PARIS, 1 July (Reuters) – Most countries negotiating a global overhaul of cross-border taxation of multinationals support a plan for new corporate tax rules and a 15% tax rate, they said after two days of talks on Thursday. The Organization for Economic Cooperation and Development, which is hosting the talks, said in Paris that a global minimum tax of 15% on corporate profits could generate $150 billion additional global tax revenue.
The agreement announced on Thursday is an attempt to address the challenges of a globalised digital global economy where profits can be shifted across borders and companies can make online profits without moving their taxable headquarters abroad. The Paris-based Organization for Economic Cooperation and Development, which hosted the talks, said that 130 countries representing more than 90% of global GDP supported the agreement in the talks. Countries that agreed to the framework included members of the OECD and the G20.
The aim is to prevent companies from evading tax by relocating businesses and head offices to countries with lower tax rates. The US corporate tax rate is currently 21% due largely to former President Donald Trump’s 2017 tax cut that were implemented to prevent companies from fleeing the lowest-tax country. Ireland has a 12.5% corporate tax rate, partly in its own effort to attract companies at the expense of other European Union countries.
According to the agreement, Ireland is absent, which opposes a minimum tax of 15% because it does not want to lose its status as major tax haven in Europe. The introduction of a global minimum corporate tax would put an end to the practice of global corporations that seek low-tax countries such as Ireland and the British Virgin Islands to relocate their headquarters, customer operations and executives there. Ireland’s low 12.5% corporate tax rate has helped to boost the so-called Celtic Tiger economy over the years. Over the years it has attracted Apple, Google and Pfizer, US multinationals that managed to avoid taxes in other countries while funneling billions in after tax revenues into their sleeve.
With a global minimum tax, multinationals would no longer be able to play a country against each other to raise the tax rates to protect their profits at the cost of public revenues. In the US, Biden has proposed a minimum rate of 21% on foreign profits of large US companies, to prevent them from shifting profits to tax havens. The proposal to tax a company on its revenues rather than its physical presence would require all countries to sign a multilateral agreement on a minimum level of corporate tax which would be endorsed on a voluntary basis by countries through their national laws.
The plan to force multinational companies to pay a global fair tax has taken another step forward with the support of 130 countries and jurisdictions, the Organization for Economic Cooperation and Development said on Thursday. Multinationals will no longer be able to avoid paying their fair share by hiding profits made in the United States or other countries in low-tax countries. The US-backed agreement would set corporate tax rates of no less than 15% to discourage companies from moving to another country to benefit from lower tax rates.
According to an OECD press release, the US-backed measure which would create a broader global tax parity to curb companies moving from one country to another as a result of lower taxes has received international support. Officials from 130 countries and G20 countries agreed on Thursday on a new two-pillar plan to reform international tax rules to ensure multinationals pay a fair share of taxes wherever they operate, said the OECD. A Wall Street Journal report said that some countries that had resisted the plan or expressed concerns have now reversed course.
Officials from 130 countries met Thursday and agreed on a rough draft of the most sweeping changes to international taxation in half a century. More than 100 countries released a statement on Thursday supporting an international tax system that includes a global minimum corporate tax – a top priority for the Biden administration. After the meeting, G-20 members are expected to announce an agreement on international tax issues.
President Joe Biden’s corporate tax plan received a boost on Thursday when 130 countries and jurisdictions signed an agreement establishing a global minimum tax for businesses. US Treasury Secretary Janet Yellen, who has led the US push for a 15% tax, called the deal a “historic day of economic diplomacy. The administration said the agreement would create a level playing field and help American companies remain competitive globally.
The OECD said it expects the framework to be completed by October and that it has the potential to raise up to $150 billion in additional tax revenues each year. The announcement represents one of the biggest potential reforms of international tax policy in decades. US Treasury Secretary Janet Yellen, who is leading the efforts of the United States to achieve a global minimum tax of at least 15%, said that a lower tax rate would not only not attract new businesses but would also deprive countries of funding for infrastructure and education to combat the coronavirus pandemic.
Some 130 countries have turned their support for their efforts to achieve a global minimum corporate tax into tiny details of legislation that would rewrite their tax codes. The two-track agreement would shift the right to tax $100 billion in profits of digital businesses from their home countries to countries where they make money, even if they do not have a physical presence, the organisations’ statement said. The $150 billion in additional tax revenues as a share of global GDP would account for all 130 countries that agree to the framework, according to the OECD.
It takes into account various interests at the negotiating table, including those of smaller economies and developing countries. The two-track agreement would set a corporate tax rate of at least 15%, which the organization says would raise $150 billion annually.
