Global minimum tax nears reality as OECD sets model rules
PARIS: A global minimum tax came closer to becoming a reality as the Organization for Economic Cooperation and Development published model rules that governments can use to make the world’s largest corporations pay at least 15% on their profits.
The Paris-based organization drafted the rules after about 140 countries agreed to a sweeping rethink of taxation in October. The first of two so-called pillars of that deal would reallocate profits to be taxed in places where multinationals operate, while the second concerns minimum tax. “The model rules released today are a significant building block in the development of a two-pillar solution, converting the foundations of a political agreement reached in October into enforceable rules,” Pascal Saint-Amans, the OECD’s top tax official, said Monday in a statement.
Political leaders hailed October’s package as a “revolution” that would curtail tax evasion and stop a race between governments to offer ever-lower rates that’s eroded public finances in recent decades. According to the OECD, the minimum tax pillar could generate about $150 billion a year in additional revenue for countries around the world.
Still, there are fresh question marks over whether new rules will ever be fully adopted after key U.S. Democratic Senator Joe Manchin said Sunday he would vote against a package that includes Washington’s version of the minimum tax. The global deal was essentially a fine balance of U.S. and European interests and both sides have threatened not to follow through if the other stumbles.
Besides the minimum tax, Pillar One of the deal also faces hurdles in the U.S. Congress. The OECD is still working on a multilateral convention for those rules, which would give governments around the world rights to tax the biggest 100 multinationals -- about half of which are American. Republicans have opposed those plans.
The minimum tax, which has long had greater bipartisan backing in the U.S., would work by creating a top-up levy that governments apply when profits of a multinational firm in another jurisdiction are effectively taxed at less than 15%. The mechanism will only hit companies with over 750 million euros ($843 million) in global revenue. The documents released Monday by the OECD provide further guidance on “carveouts,” which would allow firms to reduce their exposure to minimum tax based on tangible assets and payroll costs. To phase in the new rules, such exemptions will be gradually reduced over 10 years.