Nine countries reject global minimum tax deal, sending it down Rocky Road until completion



Nine countries have refused to sign a framework for international tax reform that includes a 15% global minimum corporate tax advocated by the Biden administration as a way to reduce international tax arbitrage by U.S. multinationals and mitigate the impact of President Joe Biden’s proposed domestic corporate tax hike. .

While officials from 130 of the 139 countries in the OECD / G20 Inclusive Framework on Base Erosion and Profit Shifting agreed last week to establish the new framework, Ireland, Estonia, Hungary, Peru, Barbados, Saint Vincent and the Grenadines, Sri Lanka, Nigeria and Kenya did not sign the agreement.

Irish Finance Minister Paschal Donohoe, whose country has attracted many big US tech companies with its 12.5% ​​corporate tax rate, said he would not join the other signatories but would always try to find an outcome that he could support.

“I was unable to reach consensus on the deal and in particular on a minimum effective global tax rate of at least 15% today,” 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.”

Mihaly Varga, Hungary’s finance minister, which has a 9% corporate tax rate, called the 15% rate “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 on Friday, adding that Hungary would continue to negotiate. .

The two-pillar framework – the result of negotiations coordinated by the Organization for Economic Co-operation and Development (OECD) for much of the past decade – aims to force large multinational corporations (MNEs) to pay taxes where they are. operate and make a profit, while seeking to end a race to the bottom in international corporate tax rates.

The first pillar would reallocate the rights to tax on more than $ 100 billion of multinational corporations’ profits per year from their home countries to the markets where they do business and make profits, whether or not the companies are physically there. present.

The second pillar, with its minimum global corporate tax rate of at least 15%, is expected to generate around $ 150 billion in additional global tax revenue per year.

The Biden administration’s call for international cooperation on the global minimum corporate tax rate is an attempt to at least partially offset any drawbacks that could arise from the president’s proposal to increase the corporate tax rate in the United States at 28%, a decision rejected by Republicans and business groups. as harming the competitiveness of US businesses and slowing wage growth.

Treasury Secretary Janet Yellen testifies before a Senate Appropriations Subcommittee hearing in Washington, June 23, 2021 (Greg Nash / Pool via AP)

New rules from the pact are tentatively set to come into effect in 2023, but for that to happen, countries need to work out the remaining details by October so tax codes can be revised next year. Some signatories, including India and Switzerland, have since expressed reservations. This suggests that an implementation in 2023 might be optimistic, given that many countries took years to ratify an earlier, lesser-scope amendment to international tax treaties.

A further complication comes in the form of European holdouts Estonia, Hungary and Ireland, as European Union law would be the means to enforce the rules in the world’s largest trading bloc, and this would require the unanimous support of the 27 EU member states.

Biden called the agreement “an important step in moving the global economy forward so that it is fairer for middle-class workers and families in the United States and around the world.”

“With a global minimum tax in place, multinational corporations will no longer be able to pit countries against each other to lower tax rates and protect their profits at the expense of government revenues. 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 low-tax jurisdictions, ”Biden said in a statement.

“It will level the playing field and make America more competitive. And that will allow us to direct the additional income we collect into generational investments, which are necessary to maintain America’s competitive advantage in today’s global economy, ”he added.

Meanwhile, Treasury Secretary Janet Yellen is expected to press her G20 counterparts this week for a global minimum corporate tax rate above the 15% floor agreed by 130 countries last week, but a decision on the rate is not expected until future stages of negotiations, Treasury officials said. Tuesday.

The deal is expected to be widely endorsed by G20 finance leaders when they meet Friday and Saturday in Venice, Italy.

Reuters contributed to this report.

Tom ozimek

Tom Ozimek has extensive experience in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he’s ever heard is from Roy Peter Clark: “Hit your target” and “leave the best for last”.



Leave A Reply