PARIS: A group of 136 countries on Friday set a minimum global tax rate of 15 per cent for big companies and sought to make it harder for them to avoid taxation in a landmark deal that US President Joe Biden said levelled the playing field.
The deal aims to end a four-decade-long “race to the bottom” by setting a floor for countries that have sought to attract investment and jobs by taxing multinational companies lightly, effectively allowing them to shop around for low tax rates.
Out of the 140 countries involved, 136 supported the deal, while Pakistan, Kenya, Nigeria and Sri Lanka abstained.
While Kenya, Nigeria and Sri Lanka did not back a previous version of the deal, Pakistan’s abstention came as a surprise, one official briefed on the talks said. India also had qualms up to the last minute, but ultimately backed the deal, they added.
Negotiations have been going on for four years and while the costs of the coronavirus pandemic gave them additional impetus in recent months, the deal was only agreed when Ireland, Estonia and Hungary dropped their opposition and signed up.
Moreover, the 15 per cent floor agreed is well below a corporate tax rate which averages around 23.5 per cent in industrialised countries.
“Establishing, for the first time in history, a strong global minimum tax will finally even the playing field for American workers and taxpayers, along with the rest of the world,” Biden said in a statement.
The deal aims to stop large firms booking profits in low-tax countries such as Ireland regardless of where their clients are, an issue that has become ever more pressing with the growth of “Big Tech” giants that can easily do business across borders.
The Paris-based Organisation for Economic Cooperation and Development (OECD), which has been leading the talks, said that the deal would cover 90 per cent of the global economy.
“We have taken another important step towards more tax justice,” German Finance Minister Olaf Scholz said in a statement.
“We now have a clear path to a fairer tax system, where large global players pay their fair share wherever they do business,” his British counterpart Rishi Sunak said.
Some countries raise concernBut with the ink barely dry, some countries were already raising concerns about implementing the deal.
The Swiss finance ministry said in a statement that the interests of small economies should be taken into account and that the 2023 implementation date was impossible, while Poland, which has concerns over the impact on foreign investors, said it would keep working on the deal.
Central to the agreement is a minimum corporate tax rate of 15 per cent and allowing governments to tax a greater share of foreign multinationals’ profits.
US Treasury Secretary Janet Yellen hailed it as a victory for American families as well as international business.
“We’ve turned tireless negotiations into decades of increased prosperity for both America and the world. Today’s agreement represents a once-in-a-generation accomplishment for economic diplomacy,” Yellen said in a statement.
The OECD said that the minimum rate would see countries collect around $150 billion in new revenues annually while taxing rights on more than $125 billion of profit would be shifted to countries where big multinationals earn their income.