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Global tax changes backed by 130 nations as deal gets closer

Global tax changes backed by 130 nations as deal gets closer

2 min. 01.07.2021 From our online archive
Agreement brokered at OECD sets stage for the Group of 20 finance ministers to sign off on accord in principle at a meeting next week
The deal was agreed by OECD countries on Thursday
The deal was agreed by OECD countries on Thursday
Photo credit: Shutterstock

The world took a big step toward sweeping changes to global taxation as 130 countries and jurisdictions endorsed setting a minimum rate for corporations along with rules to share the spoils from multinational firms like Facebook and Google.

After years of missteps and setbacks, the deal brokered in negotiations at the Organisation for Economic Cooperation and Development (OECD) sets the stage for the Group of 20 finance ministers to sign off on an agreement in principle at a meeting in Venice next week.

That could mean implementation as soon as 2023 of rules that would curtail tax evasion by making multinational companies pay an effective rate of “at least 15%” and give smaller countries more tax revenue from foreign firms.

A “small group” of nations “have not yet joined” the plan, the Paris-based OECD said in a statement on Thursday. Several key countries that had raised question marks agreed to the statement, including India, China and Turkey, according to the OECD. The technical details may leave room for further concessions to developing economies.

The broad agreement on Thursday averts another stumble that could have proved fatal for efforts to rework tax rules, given only a short window of opportunity to get a global deal approved by the US Congress and other national parliaments.

Resolving the issue had become increasingly urgent for the world economy after disagreements over taxing tech firms and setting a minimum rate spiralled into trade tensions last year.

The promise of nearly $150 billion (€126.5 billion) in extra revenue for governments also helped get a deal over the line as most countries face massive budget shortfalls in the wake of the Covid-19 pandemic.

The difficulty the deal’s advocates have faced is getting developing nations to sign up wholesale to something initially brokered by the Group of Seven.

The small club of rich economies, including the US, UK and France, agreed in London last month on a broad outline for the two pillars of the OECD negotiations: a mechanism to share rights to tax “at least 20%” of the profits above a 10% margin of the largest multinationals; and a minimum corporate tax of at least 15%.

As it is, the OECD document released on Thursday made some changes to those proposals, saying that the amount of profit to be reallocated should be between 20% to 30% of residual profit above a 10% margin, potentially increasing gains for smaller economies.

It also specifies that companies with revenue above €20 billion will be subject to the new rules on where they are taxed. In a concession to smaller economies, the Inclusive Framework agreed to review the terms after seven years and reduce the threshold to €10 billion.

The smallest economies will also benefit from a lower threshold to enable them to tax multinationals, according to the OECD terms.

©2021 Bloomberg L.P.

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