Global business tax deal moves forward

Irish Finance Minister Paschal Donohoe discusses the global corporation tax deal in an interview with Bloomberg Television in Dublin on Friday. (Photo Bloomberg)

A sweeping corporate tax overhaul garnered support from 136 countries, as nations resolved major disputes over a global minimum rate and the end of new digital taxes that the United States deemed discriminatory.

After years of missed deadlines and wrangling over how to run global tech companies like Facebook and Google, the deal struck on Friday included a 15% minimum rate for companies. It also describes the main parameters of the amount of profits of the hundred or so largest multinationals that would be taxed in more countries: 25% of profits on a 10% margin.

The deal takes one step closer to ending what US Treasury Secretary Janet Yellen calls a global “race to the bottom” between countries that attract companies with ever lower tax rates.

The Organization for Economic Co-operation and Development (OECD), which chaired the talks, said a minimum rate could eventually increase government revenues by $ 150 billion a year, while new rules would reallocate $ 125 billion. dollars in profits to be taxed in countries where large corporations generate income but may have a low physical presence.

Parties to the deal include all Group of 20 countries, the European Union and the OECD, the Paris-based organization announced on its website on Friday.

Dozens of other countries, including Thailand, members of the OECD / G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) have also endorsed the deal.

In addition, countries have agreed not to impose new taxes on digital services as of Friday, although the agreement does not include details on when existing levies will be repealed.

The deal marks a victory for global negotiations that nearly came to a halt during Donald Trump’s presidency and turned into trade tensions with unilateral action and threats of tariff retaliation. A final deal would offer the promise of new revenues for governments facing a huge debt burden after the Covid-19 pandemic.

“The alternative to what is happening is that we are seeing the growth of unilateral tax measures, we are seeing the slow erosion of our global tax architecture,” said Irish Finance Minister Paschal Donohoe, whose government has made a concession. crucial last minute to sign the agreement. “All of these things would bring additional risk, additional instability.”

The latest deal builds on a preliminary deal reached in July, when governments first agreed on key aspects of the plan, including which companies would be subject to profit reallocation rules.

The years-long talks at the OECD are divided into two so-called pillars. The first deals with questions of the allocation of profits to tax, while the second pillar aims to create an overall minimum corporate tax rate.

Among the countries involved in the talks, Kenya, Nigeria, Pakistan and Sri Lanka have not signed the deal, the OECD said.

The deal “is a crude deal for developing countries” who will get “next to nothing in direct additional revenue from this deal,” said Didier Jacobs, head of tax policy for poverty-fighting group Oxfam America , in a press release.

The G20 is looking to endorse the plans at finance officials’ meetings next week and at a summit later this month.

After that, the OECD must draft a bill to implement minimum tax rules and a multilateral convention that would potentially affect a myriad of bilateral treaties.

The multilateral convention for the implementation of the first pillar, the profit reallocation rules, will force countries to abandon existing digital taxes and similar measures and not to introduce any in the future, and will define which unilateral measures are unacceptable. as part of the agreement.

France, the first European country to introduce a tax on the income of American tech giants, has already pledged to make the removal of its tax legally binding when the new OECD rules come into force.

“This agreement at the OECD is clearly a tax revolution that will lead to less injustice, more justice, more efficiency in the way in which we are going to tax the digital giants and in the way in which we are going to places minimum taxation, ”French Finance Minister Bruno said. said The Mayor.

The OECD is aiming for a multilateral convention next year and implementation in 2023. This could prove ambitious in some countries, notably in the United States.

Republicans in Washington have warned that they will not support a deal that forgoes revenue to foreign governments, and senior senator Patrick Toomey said the Senate is unlikely to ratify the deal.

Republicans on the Senate Finance Committee on Friday warned the Biden administration against “circumventing the Senate’s constitutional treaty authority in implementing a global tax deal.”

Switzerland has said that the OECD’s timetable does not follow its national legislative procedures and that it will not introduce the new rules until 2023.

Tech companies have offered a mixed reaction.

“We are encouraged by governments’ commitment not to impose newly enacted unilateral tax measures on any business,” Jason Oxman, chairman of the Information Technology Industry Council, said in a statement.

“At the same time, we continue to call for the urgent withdrawal of all these unilateral tax measures currently in place.”

Countries also agreed on exceptions to the minimum tax – a controversial issue in the days leading up to the deal.

There will be a 5% exclusion for income related to tangible assets and payroll, which is what was agreed in July.

Friday’s deal also provided for a 10-year transition period during which the exclusion will decrease, from 8% for property, plant and equipment and 10% for payroll.

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