Joe Biden. File
Some 130 countries have backed a global minimum tax as part of a worldwide effort to keep multinational firms from dodging taxes by shifting their profits to countries with low rates.
The agreement announced by the Organization for Economic Cooperation and Development on Thursday also provides for taxing the largest global companies in countries where they earn profits through online businesses but may have no physical presence.
The agreement followed a proposal from US President Joe Biden for at least a 15% rate, an initiative that propelled the talks toward meeting a deadline for a deal by the middle of this year. The deal now will be discussed by the Group of 20 countries at meetings later this year in hopes of finishing the details in October and implementing the agreement in 2023.
Under the deal, countries could tax their companies’ foreign earnings if they go untaxed through subsidiaries in other countries. That would remove the incentive to use accounting and legal schemes to shift profits to low-rate countries since the profits would be taxed at home anyway.
Photo used for illustrative purpose.
Not all of the 139 countries that joined the talks signed on to the deal. The proposal to tax countries where they have sales but no physical presence excluded extractive companies such as oil and mining and regulated banks.
The deal now faces more technical work to fill in details and review by the Group of 20 countries, which represent some 80% of the global economy. More discussion is expected at the meeting of the G-20 finance ministers in Venice next week, and then at the full G-20 summit of country leaders in October. The proposal to tax companies where they have revenue but no physical presence would require countries to sign up for a multilateral convention.
In the US, Biden has proposed a 21% minimum rate on overseas earnings of big US companies to deter them from shifting profits to tax havens. Biden’s US tax must first pass Congress, where the Democratic president has only a narrow majority.
President Joe Biden welcomed the agreement among 130 countries on a new global minimum tax reached in the OECD on Thursday, something Washington had been pushing hard to achieve.
Biden said the accord, setting a tax floor of at least 15 per cent, would make the global economy more equitable for workers, which he has made a key focus of his administration.
“With a global minimum tax in place, multinational corporations will no longer be able to pit countries against one another in a bid to push tax rates down and protect their profits at the expense of public revenue,” Biden said in a statement.
The goal is to prevent companies from moving their headquarters to low-tax countries to shield their earnings, which deprives governments of much-needed resources.
“They will no longer be able to avoid paying their fair share by hiding profits generated in the United States, or any other country, in lower-tax jurisdictions,” Biden said.
Janet Yellen. File
US Treasury Secretary Janet Yellen called the deal “historic” and said it is “a clear sign: the race to the bottom is one step closer to coming to an end.”
“We have a chance now to build a global and domestic tax system that lets American workers and businesses compete and win in the world economy,” Yellen said in a statement.
Ireland on Thursday declined to sign a statement backed by 130 of 139 countries negotiating a global overhaul of cross-border taxation of multinationals at the Paris-based OECD, a source with knowledge of the meeting told Reuters.
The office of Irish Finance Minister Paschal Donohoe, who is negotiating on behalf of Ireland at the Paris-based Organisation for Economic Cooperation and Development, did not respond to a request for comment.
Donohoe was due to hold a press briefing at 1800 GMT on the issue, his office said in a statement.
French Finance Minister Bruno Le Maire said on Thursday the global deal, prompted by the OECD, to impose a minimum tax rate of 15% on multinationals was the most important international tax deal reached in a century.
“The OECD just said it had reached a deal with 130 countries on a new international taxation. I welcome this huge step. It’s the most important international tax deal reached since a century”, Le Maire said during a press conference.
German Finance Minister Olaf Scholz on Thursday said an agreement by 130 countries backing a global corporate minimum tax marked the biggest breakthrough in global taxation in decades.
“The race to the bottom in competition is over,” Scholz told reporters during a visit to Washington shortly after the agreement was reached in talks led by the Organization for Economic Cooperation and Development.
He said details still needed to be worked out, but the agreement marked “colossal progress” and would allow countries to increase investment in infrastructure and efforts to combat climate change.
Scholz said the 130 countries represented 90% of global gross domestic output and reflected huge efforts by Germany and other countries to ensure fair taxation of big technology corporations like Amazon.