Following two days of negotiations, most of the countries negotiating a global overhaul of cross-border taxes have backed plans for new rules which will see companies being taxed at a minimum of 15%.
According to Organisation for Economic Cooperation and Development, a Paris-based organization which hosted the talks, a global minimum corporate income tax of at least 15% could yield around $150 billion in additional global tax revenues annually.
130 countries, representing more than 90% of global GDP, have backed the agreement during negotiations.
New rules on where the biggest multinationals will be taxed would see taxes being imposed on more than $100 billion of profits to countries where the profits are earned.
“With a global minimum tax in place, multinational corporations will no longer be able to pit countries against one another in a bid to push tax rates down,” said U.S. President Joe Biden in a statement. “They will no longer be able to avoid paying their fair share by hiding profits generated in the United States, or any other country, in lower-tax jurisdictions”.
According to a source, it was tough to get Beijing on board with an official from the U.S. administration saying there were no China-specific carveouts or exceptions in the deal.
The minimum corporate tax does not require countries to set their tax rates at the lowest threshold, instead it allows them to apply a top-up levy to the minimum on companies’ income coming from a country that has a lower rate.
Burrs in technical details of the agreement will be ironed out by October with a view to implementing the new rules by 2023, said a statement from countries that backed the agreement.
The nine countries that did not sign were the low-tax EU members Ireland, Hungary, Estonia along with Saint Vincent, Peru, Grenadines, Barbados, Kenya, Sri Lanka, and Nigeria.
These holdouts risk isolation since not only all major economies have signed up for the agreement but also noted tax havens including Cayman Islands, Bermuda, and the British Virgin Islands.
Irish Finance Minister Paschal Donohoe, said, Ireland was “not in a position to join the consensus,” but would try to find an outcome that he could support.
In the European Union, the deal will need an EU law to be passed, most likely during France’s presidency of the bloc in the first half of 2022, and that will require unanimous backing from all EU members.
Welcoming the deal French Finance Minister Bruno Le Maire said, he would try to win over those holding out.
“I ask them to do everything to join this historical agreement which is largely supported by most countries,” said Le Maire while adding that all big digital corporations would be covered by the agreement.
The minimum tax rate of at least 15% would apply to companies which have a turnover above $889-million (750-million-euro) with the shipping industry being the only exeption.
Extractive industries and regulated financial services are to be excluded from the new rules on where multinationals are taxed.
The agreement is likely to face headwinds in the US Congress, where Representative Kevin Brady, the top Republican on the tax-writing U.S. House Ways and Means Committee, described it as “a dangerous economic surrender that sends U.S. jobs overseas, undermines our economy and strips away our U.S. tax base.”
($1 = 0.8437 euro)