A total of 130 countries have agreed to global tax reform to ensure multinationals pay their fair share wherever they operate, the Organization for Economic Co-operation and Development said Thursday.
The OECD added in a statement that global companies, including US giants Google, Amazon, Facebook and Apple, would be taxed at a rate of at least 15%.
But Ireland and Hungary, a low-tax European Union country, refused to sign the agreement reached within the framework of the OECD, underlining the persistent divisions over global taxation.
The two countries are part of a group of EU countries also including Luxembourg and Poland that have relied on low tax rates to attract multinationals and grow their economies.
Ireland, the EU home to tech giants Facebook, Google and Apple, has a corporate tax rate of just 12.5%.
Irish Finance Minister Paschal Donohoe has warned that the new rules, if implemented, could cost Ireland 20% of its business income.
The Organization for Economic Co-operation and Development said in a statement that global companies, including US giants Google, Amazon, Facebook and Apple would be taxed at a rate of at least 15%.
Irish Finance Minister Paschal Donohoe (pictured) has warned that the new rules, if implemented, could cost Ireland 20% of its business income.
But the new tax system is expected to add some $ 150 billion to government coffers globally.
“The framework updates key elements of the century-old international tax system, which is no longer fit for purpose in a 21st century globalized and digitized economy,” said the OECD.
The formal deal follows the approval of the G7 rich country group last month at a meeting in Britain, when US Treasury Secretary Janet Yellen said a global minimum tax “would put end to the race to the bottom of corporate taxation “.
The first ‘pillar’ of the OECD agreement is to ensure that international companies, especially digital giants, pay taxes in countries where they make profits, rather than in low-tax jurisdictions chosen to pay taxes. minimize tax payments.
The second “pillar” is a minimum level of corporate tax globally, so that governments do not compete with each other by lowering taxes to attract investment from large multinationals.
The formal deal follows approval by the G7 rich country group last month at a meeting in Britain (pictured)
Negotiations now move on to a meeting of the G20 Group of Developed and Emerging Economies on July 9-10 in Venice, Italy.
US President Joe Biden said the latest deal “puts us a striking distance from a comprehensive global deal to stop the race to the bottom for corporate taxes.”
US Treasury Secretary Janet Yellet called it “historic”.
New global tax: the G7 perspective
G7 finance ministers agreed last month on a one-size-fits-all approach to taxing global businesses.
It will see huge multinationals – such as Google, Amazon and Facebook – forced to pay sales tax in the country in which they are earned, as well as where they are headquartered.
Only large companies with profit margins of at least 10 percent will be affected by the change.
A total of 20 percent of any profit above the 10 percent margin will be reallocated.
It will then be subject to corporation tax in the countries where the companies make sales.
The G7 also agreed to set a global corporate tax standard – set at a minimum of 15 percent.
Nations can choose to increase this figure with the “applied country by country” tax.
Ministers hope this will create “a level playing field for UK businesses and crack down on tax evasion”.
The G7 will ensure the coordination necessary for the implementation of the new international rules.
Germany, another proponent of tax reform, hailed a “colossal step towards tax justice”, and France said it was “the most important tax deal in a century”.
UK Finance Minister Rishi Sunak, whose country holds the G7 Presidency, said that “the fact that 130 countries around the world, including all G20 members, are now on board, marks a new milestone in our mission of global tax reform “.
Nine of the 139 participants in the talks have yet to sign the agreement.
But China, whose position was closely watched as it offers tax incentives to key sectors, approved the deal.
“It is in everyone’s interest that we reach a final agreement among all members of the Inclusive Framework as expected later this year,” said OECD Secretary-General Mathias Cormann.
“This package does not eliminate tax competition, as it should not, but it sets multilaterally agreed limits on it,” Cormann said, adding that “it also takes into account the various interests of the negotiating table. , including those in small economies and developing jurisdictions’.
CFOs have called a minimum tax necessary to stem competition between countries over who can offer multinationals the lowest rate.
For Biden, a global tax deal will help keep the United States competitive as he proposed to raise domestic corporate taxes to pay for an infrastructure and jobs program costing around $ 2 trillion. of dollars.
Biden hailed an “important step in moving the global economy forward to be more equitable for middle-class workers and families in the United States and around the world.”
He noted that the countries that have signed represent more than 90 percent of the global economy.
The OECD statement said the package “will provide much needed support to governments that need to raise the necessary revenues” to set their budgets and invest in measures to support the post-Covid recovery.
An implementation agreement is slated for October, he said.
US President Joe Biden (pictured) hailed an “important step in moving the global economy forward to be fairer for middle-class workers and families in the US and around the world”