A sweeping corporate tax overhaul garnered support from 136 countries, as nations resolved major disputes over the level of a global minimum rate and the end of new digital taxes that the United States has deemed discriminatory.
After years of failing to meet deadlines and wrangling over how to run global tech companies like Facebook Inc. and Alphabet Inc. Google, Friday’s deal included a minimum rate of 15% for companies and major Parameters of the amount of profits of the 100 or the largest multinationals would therefore be taxed in more countries: 25 percent of profits over a 10 percent margin.
The deal takes one step closer to ending what Treasury Secretary Janet Yellen calls a global “race to the bottom” between countries that attract businesses with increasingly lower tax rates. The Organization for Economic Co-operation and Development, which chaired the talks, said a minimum rate could ultimately increase government revenues by $ 150 billion a year, while new rules would reallocate $ 125 billion in profits. to be taxed in countries where large companies generate income. but may have little physical presence.
Parties to the deal include all Group of 20 nations, the European Union and the OECD, the Paris-based organization said on Friday.
In addition, countries have agreed not to impose new taxes on digital services from Friday, although the agreement does not include details on when existing levies will be repealed.
Friday’s deal marks a victory for global negotiations that nearly came to a halt during Donald Trump’s presidency and turned into trade tensions with unilateral action and threats of tariff retaliation. A final deal would offer the promise of new revenues for governments facing a huge debt burden after the COVID-19 pandemic.
Today’s agreement represents a unique achievement for economic diplomacy. We have turned tireless negotiations into decades of increased prosperity, both for America and the world.
“The alternative to what is happening is that we are seeing the growth of unilateral tax measures, we are seeing the slow erosion of our global tax architecture,” said Irish Finance Minister Paschal Donohoe, whose government has made a concession. crucial last minute to sign the agreement. Bloomberg Television told Bloomberg on Friday ahead of the OECD announcement. “All of these things would bring additional risk, additional instability.”
The latest deal builds on a preliminary deal from July, when governments first agreed on key aspects of the plan – including which companies would be subject to profit reallocation rules.
The years-long talks at the OECD are divided into two so-called pillars. The first deals with questions of the allocation of profits to tax, while the second pillar aims to create an overall minimum corporate tax rate.
Among the countries involved in the talks, Kenya, Nigeria, Pakistan and Sri Lanka have not signed the deal, the OECD said.
The deal “is a crude deal for developing countries” who will get “next to nothing in direct additional revenue from this deal,” said Didier Jacobs, head of tax policy for poverty-fighting group Oxfam America , in a press release.
The G-20 is looking to endorse the plans at finance officials’ meetings next week and at a summit later this month.
After that, the OECD must draft a bill to implement minimum tax rules and a multilateral convention that would potentially affect a myriad of bilateral treaties.
The multilateral convention for the implementation of the first pillar, the profit reallocation rules, will oblige countries to remove existing digital taxes and similar measures and not to introduce any in the future, and will define which unilateral measures are unacceptable. as part of the agreement.
France, the first European country to introduce a tax on the revenues of American tech giants, has already pledged to make the removal of its tax legally binding when the new OECD rules come into force.
“This agreement at the OECD is clearly a tax revolution that will lead to less injustice, more justice, more efficiency in the way in which we tax the digital giants and in the way in which we will implement a tax system. minimum, ”said French Finance Minister Bruno. The Mayor said Friday.
The OECD is aiming for a multilateral convention next year and implementation in 2023. This could prove ambitious in some countries, notably in the United States.
Republicans have warned they will not support a deal that forgoes revenue to foreign governments, and a senior senator, Patrick Toomey, said the Senate is unlikely to ratify.
The GOP reiterated its position on Friday, as Republicans on the Senate Finance Committee warned the Biden administration against “circumventing Senate constitutional treaty authority in implementing a tax deal global “.
Switzerland has said that the OECD’s timetable does not follow its national legislative procedures and that it will not introduce the new rules until 2023.
Tech companies have offered a mixed reaction to the deal.
“We are encouraged by governments’ commitment not to impose newly enacted unilateral tax measures on any business,” Jason Oxman, chairman of the Information Technology Industry Council, said in a statement. “At the same time, we continue to call for the urgent withdrawal of all these unilateral tax measures currently in place.”
Countries also agreed on exceptions to the minimum tax – a controversial issue in the days leading up to the deal.
There will be a 5% exclusion for income related to tangible assets and payroll, which is what was agreed in July.
Friday’s deal also provided for a 10-year transition period during which the exclusion will decrease, from 8% for property, plant and equipment and 10% for payroll.