130+ countries reach deal on corporate taxes
15% minimum rate to counter shelter nations
More than 130 countries have agreed on sweeping changes to how big global companies are taxed, including a 15% minimum corporate rate designed to deter multinationals from stashing profits in low-tax countries.
The deal announced Friday is an attempt to address the ways globalization and digitalization have changed the world economy.
It would allow countries to tax some of the earnings of companies located elsewhere that make money through online retailing, web advertising and other activities.
U.S. President Joe Biden has been one of the driving forces behind the agreement as governments around the world seek to boost revenue following the COVID-19 pandemic.
The agreement among 136 countries representing 90% of the global economy was announced by the Parisbased Organisation for Economic Co-operation and Development, which hosted the talks that led to it.
The OECD said that the minimum tax would reap some $150 billion for governments.
“Today’s agreement represents a once-in-a-generation accomplishment for economic diplomacy,” U.S. Treasury Secretary Janet Yellen said in a statement. She said it would end a “race to the bottom” in which countries outbid each other with lower tax rates.
“Rather than competing on our ability to offer low corporate rates,” she said, “America will now compete on the skills of our workers and our capacity to innovate, which is a race we can win.”
The deal faces several hurdles before it can take effect. U.S. approval of related tax
legislation proposed by Biden will be key, especially since the U.S. is home to many of the biggest multinational companies.
A rejection by Congress would cast uncertainty over the entire project.
The big U.S. tech companies like Google and Amazon have supported the OECD negotiations.
One reason is that countries would agree to withdraw individual digital services taxes they have imposed on them in return for the right to tax a part of their earnings under the global scheme.
That means the companies would deal with just the one international tax regime, not a multitude of different ones depending on the country.
“This accord opens the way to a true tax revolution for the 21st century,” French Finance Minister Bruno Le Maire said. “Finally the digital giants will pay their just share in taxes in the countries — including France — where they produce.”
On Thursday, Ireland announced that it would join the agreement, ditching a low-tax policy that has led companies like Google and Facebook to base their European operations there.
Although the Irish agreement was a step forward for the deal, developing countries have raised objections and Nigeria, Kenya, Pakistan and Sri Lanka have indicated they will not sign up.