Global minimum tax rejected by 9 countries, complicating new deal

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A group of 130 countries struck a groundbreaking deal last week for a global minimum corporate tax rate, but the interim deal was complicated by a handful of countries who refused to endorse the plan.

Treasury Secretary Janet Yellen on Thursday announced that 130 of the 139 countries in the Organization for Economic Co-operation and Development have agreed to a long-sought conceptual framework for reforming the global tax system, including a minimum rate of at least 15 % on multinational companies, regardless of where they operate.

But nine countries – Barbados, Estonia, Hungary, Ireland, Kenya, Nigeria, Sri Lanka, Saint Vincent, Peru and the Grenadines – have not signed the interim framework.

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Perhaps the most important group of three European Union countries – Estonia, Hungary and Ireland – resist corporate tax overhaul, as a unanimous decision may be required among the bloc of 27 members to adopt the initiative.

Ireland, which has a 12.5% ​​corporate tax rate, said it had “reservations” about the proposal, but suggested it was open to further negotiations and a conclusion. of an agreement that she can support.

“I was unable to reach consensus on the deal and in particular on an overall minimum effective tax rate of at least 15% today,” Irish Finance Minister Paschal Donohoe said. “I have expressed Ireland’s reservation, but I remain committed to the process and aim to find an outcome that Ireland can still support.”

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Hungary, which has a 9% corporate tax rate, rejected the measure more forcefully, with the country’s finance minister Mihaly Varga saying the 15% rate is “too high”.

“The global minimum tax would hamper economic growth, the expected tax rate of 15% is too high and it should not be levied on real economic activity,” Varga said in a statement Friday. He said Hungary would continue “constructive” discussions with OECD countries to reach an “appropriate agreement”.

In Estonia, officials said they were not ready to “fully endorse” the deal.

The European Commission played down the disagreement between member states, noting that negotiations are expected to continue in the coming months, with the aim of finalizing a plan by October.

“We are confident that as the technical details of the proposals are developed over the coming months, the remaining member states will be able to sign the deal,” Daniel Ferrie, spokesperson for the European executive.

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The global minimum corporate tax rate aims to eradicate certain tax havens that allow multinational companies to protect their profits, while giving smaller countries more tax revenue from large corporations. Yellen said a global tax, which would apply to corporate profits overseas, would eliminate what she described as a “global race to the bottom” in terms of corporate taxes.

Corporations employ a litany of tactics to reduce their tax liability, often by shifting their profits and income to low-tax countries such as Bermuda, the Cayman Islands or Ireland, regardless of where the sale is. been carried out. The practice of U.S. and foreign multinationals costs the United States tens of billions of dollars each year, according to the Treasury Department.

The OECD has lobbied for years to eliminate corporate strategies that “exploit loopholes and inadequacies in tax rules to avoid paying taxes.” The global minimum tax would apply to foreign corporate profits, meaning countries could still set their own corporate tax rates at home.

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