A group of 136 countries on Friday set a minimum global tax rate of 15% for big companies and sought to make it harder for them to avoid taxation in a landmark deal that U.S. President Joe Biden said leveled the playing field. A group of 136 countries on Friday set a minimum global tax rate of 15% for big companies and sought to make it harder for them to avoid taxation in a landmark deal that U.S. President Joe Biden said leveled the playing field. The deal aims to end a four-decade-long “race to the bottom” by setting a floor for countries that have sought to attract investment and jobs by taxing multinational companies lightly, effectively allowing them to shop around for low tax rates.
Negotiations have been going on for four years and while the costs of the coronavirus pandemic gave them additional impetus in recent months, a deal was only agreed when Ireland, Estonia, and Hungary dropped their opposition and signed up. Moreover, the 15% floor agreed is well below a corporate tax rate which averages around 23.5% in industrialized countries. “Establishing, for the first time in history, a strong global minimum tax will finally even the playing field for American workers and taxpayers, along with the rest of the world,” Biden said in a statement.
Today’s agreement represents a once-in-a-generation accomplishment for economic diplomacy,” Yellen said in a statement. The OECD said that the minimum rate would see countries collect around $150 billion in new revenues annually while taxing rights on more than $125 billion of profit would be shifted to countries where big multinationals earn their income. Ireland, Estonia, and Hungary, all low tax countries, dropped their objections this week as a compromise emerged on a deduction from the minimum rate for multinationals with real physical business activities abroad. ‘NO TEETH ‘But some developing countries seeking a higher minimum tax rate say their interests have been sidelined to accommodate the interests of richer countries like Ireland, which had refused to sign a deal with a minimum tax rate higher than 15%.
Argentine Economy Minister Martin Guzman said on Thursday that the proposals forced developing countries to choose between “something bad and something worse”. While Kenya, Nigeria, and Sri Lanka did not back a previous version of the deal, Pakistan’s abstention came as a surprise, one official briefed on the talks said. India also had qualms up to the last minute, but ultimately backed the deal, they added. There was also dissatisfaction among some campaign groups such as Oxfam which said that the deal would not end tax havens.” The tax devil is in the details, including a complex web of exemptions,”
Oxfam tax policy lead Susana Ruiz said. “At the last minute a colossal 10-year grace period was slapped onto the global corporate tax of 15 percent, and additional loopholes leave it with practically no teeth,” Ruiz added in a statement. Companies with real assets and payrolls in a country can ensure some of their income avoids the new minimum tax rate. The level of the exemption tapers over a 10-year period. The OECD said that the deal would next go to the Group of 20 economic powers to formally endorse at a finance ministers’ meeting in Washington on Oct. 13 and then on to a G20 leaders’ summit at the end of the month in Rome for final approval.