Efforts to force multinational corporations to pay a fairer share of taxes have taken a major step forward after 130 countries and jurisdictions approved plans for a minimum global corporate tax rate.
At a landmark moment for the global economy, the Organization for Economic Co-operation and Development (OECD) published a declaration in which it commits each country to a two-pillar plan to radically reshape the global tax system.
Building on an agreement between the G7 nations in London last month, the latest breakthrough brings together all the G20 nations in the world’s largest economies, including China, India, Brazil and Russia.
However, some countries, including Ireland, Hungary and Estonia, have yet to join the reforms being negotiated with 139 participants in talks by the Paris OECD.
The others who have not yet signed are Barbados, Kenya, Nigeria, Sri Lanka and St. Vincent and the Grenadines. Peru abstained because it currently has no government.
Several jurisdictions with low or zero corporate tax rates that are widely regarded as tax havens – including the Cayman Islands and Gibraltar – were among the signatories to the agreement. Sources close to the trial said that it was clear to these places that “the writing was on the wall.”
The principle of the agreement is that multinational companies must pay a tax of at least 15% in each country in which they operate. It also includes plans to prevent tech giants and other multinational corporations from shifting profits to tax havens by allowing signatory countries to tax the world’s largest corporations based on the revenues generated within their borders.
The OECD said more than $ 100 billion (Â£ 73 billion) will be raised by curbing profit shifting. The global minimum tax rate is expected to raise approximately $ 150 billion.
The announcement comes ahead of further talks on tax reforms, which are expected to take place next month between finance ministers at the G20 meetings in Venice, with ambitions to reach a final global deal by October and implement it in 2023.
Mathias Cormann, Secretary General of the OECD, said: “After years of intense work and negotiation, this historic package will ensure that large multinational corporations everywhere pay their fair share of taxes.”
Some countries and jurisdictions with low tax rates, including Cyprus, were not involved in the OECD talks, while the nine countries that refused to join the agreement at the time set low tax rates below 15%. Ireland’s corporate tax rate is 12.5% ââand Hungary’s 9%.
Sources said Ireland had positive and constructive talks but is holding back from reaching an agreement, given the lower tax rate and desire for further progress in the US, where Joe Biden will have to push through US tax reforms through a divided Congress.
Hopes remain, however, that a global deal will be reached. The 130 states that have signed up to date make up 90% of the world economy. Biden said the breakthrough brought the world “close to a full global deal to halt the race to lower corporate taxes.”
“With a global minimum tax, multinational corporations will no longer be able to pit countries against each other to lower tax rates and protect their profits at the expense of public revenues,” he said.
Details in the OECD declaration confirmed an exception for financial services and raw materials companies under the âPillar Oneâ agreement. However, financial firms and mining giants will be subject to the minimum tax rate. British Chancellor Rishi Sunak had urged the City of London to be excluded from global tax reform, fearing it would undermine the UK financial services industry.
Sunak said he was pleased to see the momentum continued after the G7 meetings in London last month. “The fact that 130 countries around the world, including all of the G20 countries, are now on board is another step in our mission to reform the global tax,” he said.