By David McHugh and Danica Kirk | Relevant institution
LONDON – Nearly 140 countries have agreed on a tentative agreement that would make major changes to the taxing of large multinationals and prevent them from reducing profits in overseas shelters where they pay less or no tax. Are
Under the agreement, announced Friday, countries will impose at least 15 percent corporate tax globally on the largest, most internationally active firms, with an estimated ین 150 billion in state coffers once implemented. Will
President Joe Biden has been one of the driving forces behind the deal as governments around the world seek to raise revenue in the wake of the Cove 19 epidemic.
Finance Secretary Janet Yellen said in a statement that today’s agreement represents a “generational success” for economic diplomacy. He said it would end a “downward race” in which countries outperform each other with lower tax rates.
“Instead of competing on our ability to offer low corporate rates, the United States will now compete on our workers’ skills and our ability to innovate, a race we can win,” he said.
The agreement was announced by the Paris-based Organization for Cooperation and Economic Development, which hosted the talks that led to it.
There are a number of obstacles to implementing this agreement. US approval of the relevant tax legislation proposed by Biden will be key, especially since the United States is home to many large multinational corporations. Rejection by the Congress will create uncertainty over the entire project.
The agreement seeks to address the ways in which globalization and digitization are transforming the global economy. With minimal taxation, it will allow countries to tax part of the earnings of companies whose activities, such as online retailing or web advertising, do not involve physical presence.
On Thursday, Ireland announced that it would join the agreement, with the exception of a lower tax policy that would allow companies such as Google and Facebook to base their European operations there.
Although the Irish agreement was a step forward, developing countries have raised objections and Nigeria, Kenya, Pakistan and Sri Lanka have indicated they will not sign.
Proponents of anti-poverty and tax justice say much of the new revenue will go to rich countries and less to developing countries that rely heavily on corporate taxes. The G-24 group of developing countries has said that without a large share of the proceeds from the redistribution, the agreement would be “the best” and “not sustainable in the short term.”
The agreement will be taken up by a group of 20 finance ministers next week, and then by G-20 leaders for final approval at a summit in Rome in late October.
Countries will sign a diplomatic agreement to impose taxes on companies that have no physical presence in the country but make a profit through digital services.
The second part of the agreement, at least 15% of the world, will be implemented by individual countries in accordance with the model rules developed in the OECD. The provision of top-ups will mean that the tax evasion from abroad will have to be paid at home. As long as at least the major headquarters countries impose minimum taxes, the agreement will have the desired effect.
McHugh reported from Frankfurt.