The Organization for Economic Cooperation and Development (OECD) has reached a major historic deal on global minimum corporate tax rate of 15%. This deal marking a huge shift for smaller economies comes after years of disagreement.
The OECD in a statement said the landmark deal, agreed by 136 countries and jurisdictions representing more than 90% of global GDP, will also reallocate more than USD 125 billion of profits from around 100 of the world’s largest and most profitable MNEs to countries worldwide. It will ensure that these firms pay a fair share of tax wherever they operate and generate profits.
The deal is regarded as the first fundamental change to the system of cross-border corporate taxation in a century and would impose a minimum 15% global tax rate to end what was seen as harmful competition between countries to attract footloose profits. However, some countries resisted the deal, fearing damage to economic models built on relatively low taxes. And developing countries believe they still will not receive a fair percentage of taxable profits from multinationals that operate in them.
US Treasury Secretary Janet Yellen described the agreement as a ‘once-in-a-generation accomplishment for economic diplomacy. She applauded the many nations who decided to end the race to the bottom on corporate taxation and expressed hope that Congress will use the reconciliation process to quickly put the deal into practice in the United States.
“International tax policymaking is a complex issue but the arcane language of today’s agreement belies how simple and sweeping the stakes are – when this deal is enacted, Americans will find the global economy a much easier place to land a job, earn a living or scale a business,” Yellen said.
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But a number of countries are skeptical that US administration, led by President Joe Biden, will be able to ratify the OECD agreement in Congress, and without that other countries’ agreement to shelve their plans for a digital levy on US tech companies would become futile. It should be noted that France, the UK and India amongst others, have moved to introduce such digital service taxes – targeting big tech companies like Amazon, Facebook and Google, arguing that these companies pay too little local tax on their profits because they book them in other jurisdictions.
The deal is set to be finalized by G20 Finance Ministers at a meeting next week in Washington, US.
