Monday, 18 October 2021

More than 130 countries reach a deal on 15% corporate minimum tax

More than 130 countries reach a deal on 15% corporate minimum tax

More than 130 countries have admitted to a tentative agreement that would make sweeping changes to how big multinational companies are taxed to deter them from slashing their profits in offshore havens where they pay less or no taxes.

Under these agreements announced on Friday, countries would enact a global minimum corporate tax of 15% on the biggest, active companies international.

As governments worldwide seek to boost income following the pandemic, Joe Biden, U.S. President, has been one of the pilot forces behind the agreement.

Janet Yellen, U.S. Treasury Secretary, said in a statement.

"Today's agreement represents a once in a generation accomplishment for economic diplomacy,"

The agreement was announced by a Paris-based Organization for Economic Development and Cooperation, which hosted the talks that led to doing it.

The deal is an attempt to address to ways digitalization and globalization have changed the global economy. Alongside the minimum tax, it would also allow countries to tax part of the revenue of companies whose activities, such as web advertising or online retailing, don't involve physical appearance.

More than 130 countries reach a deal on 15 corporate minimum tax 1pixabay image

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On Thursday, Ireland declared that it would join an agreement, throw out the low-tax policy that has led companies like Facebook and Google to base their European operations there.

Although the Irish agreement was a step forward, developing countries have raised objections, and Nigeria, Kenya, Pakistan, and Sri Lanka have indicated they will not sign up.

Anti-poverty and tax fairness advocates have said the bulk of new revenue would go to wealthier countries and offer less to developing countries that are more dependent on corporate taxes. The G-24 group of developing countries said that without a more significant share of the revenue from reallocated profits, the deal would be "sub-optimal" and "not sustainable even in the short run."

The deal must clear several more hurdles. The 20 leaders will take it up at a summit in Rome on Oct. 30-31. Then, the part of the deal that reallocates the right to tax corporate profits to where goods and services are consuming would ask countries to sign up to a diplomatic agreement.

On the other hand, the universal minimum could be approved by countries in coordinated unilateral action. A top-up provision would mean tax avoided overseas would have to be paying at home. So long as at least the significant headquarters countries implement the minimum tax, the deal would have most of its desired effect.

U.S. approval of related tax legislation proposed by Biden will be critical, especially since the U.S. is home to many giant multinationals. A rejection by Congress would cast uncertainty over the entire project.

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