136 Counties Agree to 15% Global Minimum Corporate Tax Rate
The Organization for Economic Cooperation and Development (OECD) announced 136 countries agreed to introduce a global minimum corporate tax rate set at 15% today.
“Today’s agreement represents a once-in-a-generation accomplishment for economic diplomacy. We’ve turned tireless negotiations into decades of increased prosperity – for both America and the world,” Treasury Secretary Janet Yellen tweeted.
Today’s agreement represents a once-in-a-generation accomplishment for economic diplomacy. We’ve turned tireless negotiations into decades of increased prosperity – for both America and the world.
“As of this morning, virtually the entire global economy has decided to end the race to the bottom on corporate taxation. In its place, more than 130 nations – including all 20 in the G20 – have agreed to a new and specific set of provisions to uniformly tax the income of multinational companies, including a global minimum tax. Rather than competing on our ability to offer low corporate rates, America will now compete on the skills of our workers and our capacity to innovate, which is a race we can win,” Yellen said in a statement.
The new minimum tax rate will apply to companies with revenue above $868 million (€750 million) and is estimated to generate around $150 billion in additional global tax revenues annually, according to an OECD statement. Further benefits will also arise from the stabilization of the international tax system and the increased tax certainty for taxpayers and tax administrations, according to the statement.
With Estonia, Hungary and Ireland having joined the agreement, it is now supported by all OECD and G20 countries. Four countries — Kenya, Nigeria, Pakistan and Sri Lanka — have not yet joined the agreement, the OECD says.
Ireland’s agreement — which came after some language changes in the accord — is particularly notable, as Ireland had been so far against the corporate tax hike.
”The agreement provides that the minimum effective rate for multinationals with annual revenue in excess of €750 million is 15%. We have secured the removal of ‘at least’ in the text,” the Minister for Finance, Paschal Donohoe, said in a statement. “This will provide the critical certainty for Government and industry and will provide the long-term stability and certainty to business in the context of investment decision.”
Countries are aiming to sign a multilateral convention during 2022, with effective implementation in 2023, according to the OECD.
President Joe Biden, in a statement on the White House website, said that the global minimum tax will finally even the playing field for American workers and taxpayers, along with the rest of the world.
“Secretary Yellen and the rest of my administration have rallied more than 130 countries representing more than 90% of the world’s GDP to bring us one step closer to finally ending that race to the bottom, to ensure that profitable corporations pay their fair share, and provide governments with the resources to invest in their workers and economies,” he said.
“Today’s agreement will make our international tax arrangements fairer and work better,” OECD Secretary-General Mathias Cormann said in a statement. “This is a major victory for effective and balanced multilateralism. It is a far-reaching agreement which ensures our international tax system is fit for purpose in a digitalized and globalized world economy. We must now work swiftly and diligently to ensure the effective implementation of this major reform.”
The New York Times reports that the deal goes beyond setting a global minimum tax — it also creates new rules for the digital era. Tech giants such as Amazon and Facebook will be required to pay taxes in countries where their goods or services are sold, even if they have no physical presence there.
“The accord would represent a sea change in the way the world’s largest corporations have been taxed for decades, and is likely to see them pay more taxes while spreading taxable revenue more evenly to countries where those businesses earn sales. Until now, profits have largely been taxed where businesses have had a physical presence,” according to the NYT.
In June, the G7 said it had reached a “historic commitment” regarding the global tax system, part of which would seek to rectify large tech companies’ corporate tax avoidance via tax havens. At the time, the G7 said in a statement it would continue the discussion “to reach consensus on a global agreement on an equitable solution on the allocation of taxing rights and an ambitious global minimum tax of at least 15 per cent [sic] on a country-by-country basis, through the G20/OECD inclusive framework and look forward to reaching an agreement at the July meeting of G20 Finance Ministers and Central Bank Governors.”
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