Nearly 140 countries have taken a decisive step in forcing the world’s largest corporations to pay a fair share of tax, with plans for a global minimum corporate tax rate of 15% to be imposed by 2023.
The Organization for Economic Co-operation and Development (OECD) said 136 countries and jurisdictions had agreed to join a deal to impose a two-pillar global tax reform plan.
Describing the “historic deal” as an important step towards the end of decades of countries undermining their neighbors in tax matters, the Paris-based institution said 136 out of 140 jurisdictions participating in the negotiations had signed on to the deal.
Resisters from previous rounds of negotiations, including Ireland, Hungary and Estonia, have agreed to the latest plans, meaning that the 38 OECD member countries and the G20 group of the world’s most advanced economies would do so. part of the reforms. Four countries – Kenya, Nigeria, Pakistan and Sri Lanka – did not join the latest statement.
As part of historic reforms, a new tax law will be created allowing countries to take part of the profits generated by a handful of the world’s largest companies, based on sales generated within the borders of each country. .
The OECD said more than $ 125 billion (£ 92 billion) of corporate profits from around 100 of the world’s largest and most profitable multinationals would be reallocated under the first pillar of the two-tier reforms. shutters.
The second pillar will set an overall minimum tax rate of 15% on large companies. While claiming the plan will not eliminate tax competition, the deal sets rules limiting the race to the bottom in taxation. The OECD has said it will raise an additional $ 150 billion each year for governments around the world.
After a week of tense negotiations in Paris, the deal comes after Ireland abandoned its resistance to the plan following the removal of the phrase “at least” from a previous draft text, which had promised a minimum tax overall of “at least 15%”. Ireland sets a corporate tax rate at 12.5%.
Dublin agreed to join after receiving assurances from the EU that the rate would not be increased later. The global tax floor will also apply only to the largest companies, with an annual turnover of 750 million euros.
While they represent significant progress after years of false starts, activists argued that more could have been done to ensure fair taxation of large companies based on their local sales.
Developing countries, including Nigeria and Kenya, had been reluctant to join the deal, fearing that it would disproportionately benefit large economies, while leaving small countries without the right to a just claim on the deal. big business profits.
The deal precedes meetings between G20 finance ministers in Washington next week, as well as a meeting of G7 finance ministers chaired by Rishi Sunak on his first trip to the United States since taking office. became British Chancellor.
Sunak said he was proud of the historic reforms, which were approved in principle at the G7 in London in June. “We now have a clear path to a fairer tax system, where the world’s big players pay their fair share wherever they do business,” he said.
The OECD said countries involved in the deal would aim to sign a multilateral convention next year, with effective implementation of tax reforms in 2023.
Mathias Cormann, secretary general of the OECD, said the plan was a “major victory” for international cooperation. “This is a far-reaching agreement that ensures that our international tax system is responsive to its needs in a digitalized and globalized world economy. We must now work quickly and diligently to ensure the effective implementation of this major reform. “