Despite Yellen Endorsement, Global Minimum Tax Deal Likely to Stall Beyond 2023
The Organization for Economic Cooperation and Development (OECD) announced in October that 136 countries had agreed to introduce a global minimum corporate tax rate set at 15%. Countries were aiming to sign a multilateral convention during 2022 — with effective implementation in 2023, according to the OECD — but now, ongoing negotiations are delaying that goal. Implementation of such an economic plan has drawn a great deal of interest from prominent politicians as well as the general public.
The deal was touted by Treasury Secretary Janet Yellen, who tweeted at the time that “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.”
However, the agreement is taking a long time to finalize. While there is a general consensus on the rate as well as various exemptions and deductions, negotiators are falling behind on a “commentary” document — several hundred pages in length — to be released alongside the model legislation, according to the Wall Street Journal.
The WSJ reports that the commentary document now isn’t expected until January or February, making it unlikely the global minimum tax would take effect anywhere by 2023, as the OECD hopes. In particular, the European Union’s 27 members are especially prone to delay, and Brussels will soon release a draft directive instructing those 27 governments on how to implement the OECD’s minimum tax. The process faces a tough slog, per the WSJ.
Leaked Document Hints at OECD Plans
However, Bloomberg reports that a leaked document shows the model rules — if approved — would fill in details on key open questions following countries’ October agreement on the minimum tax. Details connected to the leaked document indicate a definition as to what kind of payroll and tangible asset costs are eligible for a carve-out from the rules, and how the rules will deal with timing differences between when profits are recorded and when taxes are paid.
Countries would be able choose to implement the minimum tax (referred to as Pillar Two) into their domestic legislation, basing their law on the model rules. The rules would be put to use almost immediately, with the European Union planning to release a directive Dec. 22 that would require its 27 member countries to implement the rules themselves, according to Bloomberg.
The OECD said Dec. 15 that the model rules would be released Dec. 20, according to its website. “In October 2021, over 135 jurisdictions joined a ground breaking plan to update key elements of the international tax system which is no longer fit for purpose in a globalized and digitalized economy. These rules are intended to be implemented as part of a common approach and to be brought into domestic legislation as from 2022.”
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 in October. 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 Appears Open to the Tax Agreement
Ireland’s agreement — which came after some language changes in the accord — is particularly notable, as Ireland had previously been 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,” Ireland’s 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.”
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