(Bloomberg) – A major corporate tax overhaul won the support of 136 countries as the nations settled key differences over the level of a global minimum rate and the end of new digital taxes that the US has deemed discriminatory.
After years of missed deadlines and arguments over how to deal with global tech companies like Facebook Inc. and Alphabet Inc.’s Google, Friday’s deal included a minimum 15% rate for businesses and the key parameters for how much multinational company profits would be taxed in more countries : 25% of profit over a margin of 10%.
The Organization for Economic Co-operation and Development, which chaired the talks, said a minimum rate could ultimately increase national incomes by $ 150 billion a year, while new rules taxed countries’ profits of $ 125 billion where large companies generate revenue but may have little physical presence. The contracting parties to the agreement include all the nations of the Group of 20, the European Union and the OECD, the Paris-based organization announced on Friday.
In addition, the countries agreed not to impose any new taxes on digital services as of Friday, although the agreement did not provide details on when existing taxes will be lifted.
Friday’s agreement marks a victory in global negotiations, which came to a standstill during Donald Trump’s presidency and led to trade tensions with unilateral measures and threats of retaliatory tariffs. A final deal would promise new revenue to governments facing enormous debt burdens following the Covid-19 pandemic.
Today’s deal is a once-in-a-lifetime achievement in economic diplomacy. We have turned relentless negotiations into decades of increased prosperity for America and the world.
My statement on the OECD Inclusive Framework Announcement: pic.twitter.com/nRUbRP4BrD
– Secretary Janet Yellen (@SecYellen) October 8, 2021
“The alternative to that is we see the growth of unilateral tax measures, we see the slow erosion of our global tax architecture,” said Irish Treasury Secretary Paschal Donohoe, whose government made a crucial last-minute concession to sign the deal, Bloomberg Television said on the Friday before the announcement by the OECD. “All of these things would add additional risk and instability.”
The latest deal builds on a tentative July deal when governments first agreed on key aspects of the plan – including companies that would be subject to profit redistribution rules.
The long-term discussions at the OECD are divided into two so-called pillars. The first pillar deals with questions of tax appropriation, while the second pillar tries to create a global minimum tax rate for companies.
Of the countries involved in the talks, Kenya, Nigeria, Pakistan and Sri Lanka have not signed the agreement, the OECD said.
The G-20 plans to approve the plans at a meeting of tax officials next week and a summit at the end of the month.
According to this, the OECD has to draft bills to implement minimum tax regulations and a multilateral agreement that would potentially affect a large number of bilateral agreements.
The multilateral agreement implementing the first pillar, the rules on the distribution of profits, will require countries to abolish existing digital taxes and similar measures and not introduce future ones, and will determine which unilateral measures are unacceptable under the agreement.
France, the first European country to introduce a levy that will weigh on US tech giants’ revenues, has already committed to making its tax abolition legally binding when the new OECD rules come into effect.
“This agreement at the OECD is clearly a tax revolution that will lead to less injustice, more justice and more efficiency in taxing digital giants and introducing minimum taxation,” said France’s Finance Minister Bruno Le Maire said Friday.
The OECD is aiming for a multilateral convention next year and implementation in 2023. That could prove ambitious in some countries, not least the US
Republicans have warned they would not support a deal that would give revenue to foreign governments, and a senior senator, Patrick Toomey, said the Senate is unlikely to ratify it.
The GOP reiterated the stance on Friday when Republicans on the Senate Finance Committee warned the Biden administration not to “circumvent the authority of the Senate Constitutional Treaty in implementing a global tax treaty.”
Countries also agreed on exemptions from the minimum tax – a contentious issue in the days leading up to the deal.
There will be a 5% carve-out for income tied to property, plant and equipment and payroll – as agreed in July.
Friday’s deal was also built in a 10-year transition period during which the spin-off will decline, starting at 8% for property, plant and equipment and 10% for payroll.
– With the help of Hamza Ali.