OECD: Agreement on A Tax System for Multinationals
“A colossal step”, “historic day”: less than a month after the G7, and after years of negotiations, 130 countries, but not Ireland, agreed on Thursday to better tax multinationals, with in particular a minimum corporate tax rate of “at least 15%”.
“After years of intense work and negotiations, this historic package of measures will ensure that large multinational corporations pay their fair share of taxes all over the world,” said Mathias Cormann, Secretary General of the Development Organization and of Economic Cooperation (OECD) which is piloting these negotiations, quoted in a press release.
A small group of countries, including Ireland and Hungary, very reluctant to the proposed deal that was under negotiation, did not sign the declaration reached today, according to the list provided by the organization.
But China, whose position was eagerly awaited, and countries generally regarded as tax havens, joined the deal.
“Multinational corporations will no longer be able to pit countries against each other in an attempt to lower tax rates and protect their profits at the expense of government revenues,” US President Joe Biden said in a statement. These companies “will no longer be able to avoid paying their fair share by hiding profits generated in the United States, or any other country, in lower tax jurisdictions.”
Its Treasury Secretary, Janet Yellen, hailed “a historic day for economic diplomacy”.
German Finance Minister Olaf Scholz spoke of a “colossal step towards greater tax justice” and his French counterpart Bruno Le Maire “the most important international tax agreement concluded in a century”.
The joint declaration, which is based on the agreement reached at the G7 at the beginning of June, also provides for a “more equitable” distribution of the profits between the countries where the head offices of the companies are located and those where they actually carry out their activity, even without physical presence. This component targets in particular the digital giants.
“This two-pillar plan will be of great help to states as they need to mobilize the tax revenues necessary to restore their budgets and public finances while investing in essential public services, infrastructure and measures required for post-recovery recovery. COVID is strong and lasting, ”said the OECD in its press release.
“This package of measures does not and is not intended to end tax competition, but seeks to limit it according to multilaterally agreed rules,” Cormann insisted.
Implementation in 2023
The participants in the negotiations have given themselves until next October to “complete the technical work” and to prepare “a plan for effective implementation in 2023”.
This meeting was eagerly awaited, between that of the G7 in early June in London, and that scheduled for next week of the G20 finance ministers in Venice. The latter are expected to endorse the technical and political advance made on Thursday.
The deal reached in London had given new impetus to negotiations, which had stalled during Donald Trump’s presidency and revived with the arrival of Joe Biden in the White House.
The health crisis, which has seen states spend heavily to deal with the pandemic and support their economies, has also strengthened the political will to reach an agreement that is supposed to increase tax revenues. According to the OECD, at a rate of at least 15%, the global minimum tax is expected to generate around $ 150 billion in additional tax revenue per year globally.