China among 130 countries to back global minimum corporate tax of at least 15 per cent
- Paris-based Organisation for Economic Cooperation and Development says a global minimum corporate income tax of at least 15 per cent could yield around US$150 billion in additional revenues annually
- Group of 7 agreed to the rate in June, and now the broader agreement will go to the Group of 20 for political endorsement at a meeting in Venice next week
Most of the countries negotiating a global overhaul of cross-border taxation of multinationals have backed plans for new rules on where companies are taxed and a tax rate of at least 15 per cent, they said on Thursday after two days of talks.
The Paris-based Organisation for Economic Cooperation and Development, which hosted the talks, said a global minimum corporate income tax of at least 15 per cent could yield around US$150 billion in additional global tax revenues annually.
It said 130 countries, representing more than 90 per cent of global gross domestic product, had backed the agreement at the talks.
New rules on where the biggest multinationals are taxed would shift taxing rights on more than US$100 billion of profits to countries where the profits are earned, it added.
“They 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.”
The minimum corporate tax does not require countries to set their rates at the agreed floor, but gives other countries the right to apply a top-up levy to the minimum on companies’ income coming from a country that has a lower rate.
Technical details are to be agreed by October so that the new rules can be implemented by 2023, a statement from countries that backed the agreement said.
The nine countries that did not sign were the low-tax European Union members Ireland, Estonia and Hungary as well as Peru, Barbados, Saint Vincent and the Grenadines, Sri Lanka, Nigeria and Kenya.
Holdouts risk becoming isolated because not only did all major economies sign up, but so did many noted tax havens such as Bermuda, the Cayman Islands and the British Virgin Islands.
Irish Finance Minister Paschal Donohoe, whose country has attracted many big US tech firms with its 12.5 per cent corporate tax rate, said he was “not in a position to join the consensus,” but would still try to find an outcome he could support.
“I have expressed Ireland’s reservation, but remain committed to the process and aim to find an outcome that Ireland can yet support,” he said.
Donohoe said he supported “Pillar One” which proposes a reallocation of a proportion of tax to the country where the profit is earned, as it would “bring stability and certainty to the international tax framework.”
But he told journalists he objected to the minimum rate contained in “Pillar Two” and would “continue to make the case on issues that matter to Ireland.” He declined to say what those issues were.
“When we approach October, we will be even clearer regarding what an agreement will look like. And we will negotiate and engage up to that point,” he said.
Some of the countries who agreed to sign the agreement may have to work to justify the decision domestically, he added.
“Any minister, having made the decision today will have to explain that decision to their parliament and their governments,” he said.
Ireland has said it wants any deal to allow small countries to use tax competition as a lever to compensate for the natural advantages enjoyed by larger countries in attracting jobs and investments. Critics say low-tax countries like Ireland enjoy a disproportionate share.
Donohoe has also called for any final deal to allow companies to offset part of their tax bills through research and development.
In the European Union, the deal will need a law to be passed, most likely during France’s presidency of the bloc in the first half of 2022, and that will require unanimous backing from all members.
Welcoming the deal as the most important international tax deal reached in a century, French Finance Minister Bruno Le Maire said he would try to win over those holding out.
“I ask them to do everything to join this historical agreement which is largely supported by most countries,” he said, adding that all big digital corporations would be covered by the agreement.
The new minimum tax rate of at least 15 per cent would apply to companies with turnover above a €750 million (US$891 million) threshold, with only the shipping industry exempted.
The new rules on where multinationals are taxed aims to divide the right to tax their profits in a fairer way among countries as the emergence of digital commerce had made it possible for big tech firms to book profits in low tax countries regardless where they money was earned.
Companies considered in scope would be multinationals with global turnover above €20 billion and a pre-tax profit margin above 10 per cent, with the turnover threshold possibly coming down to €10 billion after seven years following a review.
Extractive industries and regulated financial services are to be excluded from the rules on where multinationals are taxed.
Implementation of the deal could still prove rocky not least in the US Congress, where Representative Kevin Brady, the top Republican on the tax-writing US House Ways and Means Committee, described it as “a dangerous economic surrender that sends US jobs overseas, undermines our economy and strips away our US tax base.”
The head of the International Monetary Fund (IMF) on Thursday welcomed an agreement, and said work would continue to bring others into the fold.
“Very clearly, this train finally has left the station,” IMF managing director Kristalina Georgieva told reporters. “Work will continue to make sure that the countries that are not yet on board … can recognise their own interests,” she added.