On Thursday, the Organization for Economic Co-operation and Development said 130 countries had agreed to a global tax reform that would ensure multinational companies everywhere pay their fair share, but some countries in the European Union refused to join.
The Organization for Economic Cooperation and Development said in a statement that global companies, including US giants Google, Amazon, Facebook and Apple, will be subject to a tax of no less than 15 percent after the implementation of the agreement.
The new tax system will add about $150 billion to national coffers worldwide once it takes effect, which the Organization for Economic Co-operation and Development says will be in 2023.
“The framework updates key elements of the centuries-old international tax system that have been used in the globalized and digital economy of the 21st century.
The formal agreement follows ratification by the Group of Seven rich nations last month, and negotiations will now move to the July 9-10 meeting of the Group of 20 advanced and emerging economies in Venice, Italy, above.
US President Joe Biden said the latest deal “puts us within walking distance of a complete global deal to stop the race to the bottom of corporate taxation.”
Germany, a proponent of tax reform, hailed the decision as a “big step towards tax justice”, while France called it “the most important tax treaty in a century”.
“The fact that 130 countries around the world, including all of the G20 countries, is another step in our mission of global tax reform,” said British Chancellor of the Exchequer Rishi Sunak, whose country holds the G7 presidency.
– ‘For the good of all’ –
However, the organization said the low-tax countries of the European Union, Ireland and Hungary, refused to sign the agreement reached within the framework of the Organization for Economic Co-operation and Development, highlighting persistent divisions in global taxation.
Both countries are part of a group of European Union countries, including Luxembourg and Poland, that have relied on low tax rates to attract multinationals and build their economies.
Ireland, home to tech giants like Facebook, Google and Apple, has a corporate tax rate of just 12.5 percent.
Irish Treasurer Pascal Donohoe has warned that the new rules could cause Ireland to lose 20 per cent of corporate revenue.
On Thursday, Donoghue said Ireland still “largely” supports the deal, but not the 15 per cent minimum tax.
“There is still a lot to do before a comprehensive agreement is reached,” he said, adding that Ireland would engage “constructively” in further discussions.
Switzerland has also expressed concerns – known for its bank secrecy laws – that it will support these measures despite “key reservations” and that it hopes the interests of “innovative small countries” will be taken into account.
An agreement on implementing the plan is due to be reached in October.
Nine of the 139 interviewees have not yet signed the agreement.
But China, whose position is closely watched to offer tax incentives to key sectors, backed the deal.
“It is in everyone’s interest that we reach a final agreement among all members of the Comprehensive Framework this year as planned,” said OECD Secretary-General Matthias Kormann.
“This package does not eliminate tax competition as it should not, but it does set multilaterally agreed limits on it,” Corman said, adding that it also “takes into account the various interests at the negotiating table, including in small economies and developing countries.”
– ‘Fairer’ global economy –
Tax officials have called for the minimum tax needed to reduce competition between countries as to who can offer the lowest tax rate for multinational corporations.
For Biden, a global tax deal would help keep the United States competitive as he proposed increasing domestic corporate taxes to pay for nearly $2 trillion in infrastructure and employment programme.
Biden – whose tax plans may be highly competitive in Congress – hailed a “significant step forward in pushing the global economy to become more equitable for middle-class workers and their families in the United States and around the world.”
He noted that the signatories to the agreement constitute more than 90% of the global economy.
The OECD statement said the package “will provide much-needed support to governments that need to generate the revenue they need” to reform their budgets and invest in measures to support post-Covid recovery.
Meanwhile, the charity Oxfam said the deal missed the tax needed to give poor countries a fair share of the extra tax revenue.
Oxfam called the deal “rich and totally unfair” and said the signatories had missed a “golden opportunity to build a fairer world”.
burs-jh / lc / oho / je