- Ireland, Estonia and Hungary drop opposition to deal
- Global deal ensures large corporations pay 15% minimum tax rate
- Some developing countries, American Republicans skeptical
PARIS, October 8 (Reuters) – A group of 136 countries on Friday set a minimum global tax rate of 15% for large corporations and sought to make it harder for them to avoid tax in a landmark deal which, according to US President Joe Biden, leveled the playing field.
The deal aims to end a four-decade “race to the bottom” by setting a floor for countries that have sought to attract investment and jobs by taxing multinational companies lightly, allowing them to seek lower rates. low taxation.
The agreed 15% floor, however, is well below a corporate tax rate that averages around 23.5% in industrialized countries.
Some developing countries that wanted a higher rate said their interests had been set aside to accommodate richer countries, while NGOs criticized the deal’s many exemptions, with Oxfam saying it did. “no bite”.
The deal also promises to be a tough sell in Washington, where a group of U.S. Republican senators have sent a letter to Treasury Secretary Janet Yellen saying they have serious concerns.
Negotiations have been going on for four years, and the deal was finally reached when Ireland, Estonia and Hungary dropped their opposition and signed.
The deal aims to prevent large companies from making profits in low-tax countries like Ireland regardless of where their customers are, an issue that has become increasingly urgent with growth. “Big Tech” giants who can easily do business across borders.
“The establishment, for the first time in history, of a strong global minimum tax will finally be a level playing field for American workers and taxpayers, as well as the rest of the world,” Biden said in a statement.
Of the 140 countries involved, 136 supported the agreement, with Kenya, Nigeria, Pakistan and Sri Lanka abstaining for now.
The Paris-based Organization for Economic Co-operation and Development (OECD), which is leading the talks, said the deal would cover 90% of the global economy.
“We have taken another important step towards more tax justice,” German Finance Minister Olaf Scholz said in a statement sent to Reuters.
“We now have a clear path to a fairer tax system, where the world’s big players pay their fair share wherever they do business,” said his British counterpart Rishi Sunak.
But with the ink barely dry, some countries were already worried about the deal’s implementation. Switzerland’s finance ministry demanded that the interests of small economies be taken into account and said the implementation date of 2023 was impossible.
In the United States, meanwhile, Republican senators have said they fear the Biden administration is considering bypassing the need to gain Senate authority to implement treaties.
Under the Constitution, the Senate must ratify any treaty by a two-thirds majority, or 67 votes. Biden’s fellow Democrats control just 50 seats in the 100-member chamber. And in recent years, Republicans have been overwhelmingly hostile to treaties and have supported corporate tax cuts.
The reaction to the deal from US markets has been muted, with investors focusing instead on the latest wage data. Some of the big tech companies, often cited by critics for seeking to cut taxes through overseas operations, have welcomed the deal.
“We are delighted to see an international consensus emerge,” said Nick Clegg, vice president of global affairs for Facebook Inc. “Facebook has long called for reform of global tax rules, and we recognize that this could mean paying more. taxes, and in different places. “
A spokesperson for Amazon.com Inc (AMZN.O) said the company supports “progress towards a consensus solution for international tax harmonization, and we look forward to their technical work continuing.”
Morgan Stanley analysts said tech hardware, some multimedia services and healthcare appeared to be the most exposed to a 15% minimum tax rate.
At the heart of the deal is a minimum corporate tax rate of 15% and allows governments to tax a larger share of the profits of foreign multinationals.
Yellen hailed it as a victory for American families as well as international businesses.
“We have turned tireless negotiations into decades of increased prosperity – both for America and for the world. Today’s agreement represents a unique achievement for economic diplomacy,” Yellen said in a statement.
The OECD said the minimum rate would allow countries to collect around $ 150 billion in new income per year, while taxing rights on more than $ 125 billion in profits would shift to countries where large multinationals earn. their income.
Ireland, Estonia and Hungary, all low-tax countries, dropped their objections this week as a compromise emerged on a minimum rate deduction for multinationals with actual physical business activities abroad.
However, many developing countries have said their interests have been ignored and rich countries are likely to continue to share the spoils of foreign direct investment among themselves.
Argentina’s Economy Minister Martin Guzman said on Thursday that the proposals forced developing countries to choose between “something bad and something worse.”
Campaign groups such as Oxfam have said the deal will not end tax havens.
“The tax devil is in the details, including a complex web of exemptions,” Susana Ruiz, Oxfam’s tax policy officer, said in a statement.
“At the last minute, a colossal 10-year grace period was applied to the 15% global corporate tax, and further loopholes leave it virtually bite-free,” Ruiz added.
Companies with real assets and a payroll in a country can ensure that a portion of their income avoids the new minimum tax rate. The level of the exemption decreases over a 10-year period.
The OECD said the deal would then be submitted to the Group of 20 economic powers for formal approval at a meeting of finance ministers in Washington on October 13, and then at a summit of G20 leaders at the end of the year. months in Rome for final approval. .
Countries that back the deal are supposed to put it in their law books next year so it can go into effect from 2023, which many officials say is extremely strict.
French Finance Minister Bruno Le Maire said Paris would use its presidency of the European Union in the first half of 2022 to translate the deal into law in the bloc of 27 countries.
Reporting by Leigh Thomas; Additional reporting by Christian Kraemer in Berlin, Elizabeth Piper and Mark John in London and David Lawder and Patricia Zengerle in Washington; Megan Davies in New York and Chavi Mehta in Bangalore; Editing by Alexander Smith and Rosalba O’Brien
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