India, 135 other nations agree on landmark global corporate tax deal

Officials said the tax deal would cover 90 percent of the global economy. (Representative)

A group of 136 countries on Friday set a minimum global tax rate for large companies at 15 percent and sought to make it harder to avoid taxation in a historic deal that US President Joe Biden said leveled the playing field. has gone.

The deal aims to end a four-decade-long “race to the bottom” by setting a floor for countries that have sought to attract investment and jobs by lightly taxing multinationals, effectively reducing them. Permitted to shop for rates.

Negotiations have been going on for four years and in recent months the cost of the coronavirus pandemic has given them additional impetus, with a deal agreed only when Ireland, Estonia and Hungary dropped their opposition and signed up.

Furthermore, the agreed 15 per cent floor is much lower than the corporate tax rate, which averages around 23.5 per cent in industrialized countries.

“For the first time in history, the establishment of a strong global minimum tax will ultimately lead to a level playing field for American workers and taxpayers, as well as for the rest of the world,” Joe Biden said in a statement.

The deal is intended to deter large firms from booking profits in low-tax countries such as Ireland, regardless of where their clients are, an issue that has become more pressing with the growth of “big tech” giants that Can trade across borders with ease.

Of the 140 countries involved, 136 supported the agreement, with Kenya, Nigeria, Pakistan and Sri Lanka remaining separate. The Paris-based Organization for Economic Co-operation and Development (OECD), which is leading the talks, said the deal would cover 90 per cent of the global economy.

“We have taken another important step towards greater tax justice,” German Finance Minister Olaf Scholz said in an emailed statement to Reuters. We now have a clear path to a fair tax system, where the big global players pay their fair share. trade,” said his British counterpart Rishi Sunak. But the ink was barely dry, with some countries already expressing concerns about implementing the deal.

The Swiss finance ministry demanded in a statement that the interests of smaller economies be taken into account, saying a 2023 implementation date was impossible, while Poland, which has concerns over the impact on foreign investors, said it was continuing to work on the deal. Will keep

“Increased Prosperity”

At the heart of the agreement is a minimum corporate tax rate of 15% and allowing governments to tax a large proportion of the profits of foreign multinationals.

US Treasury Secretary Janet Yellen saw it as a victory for American households as well as international trade. “We have transformed decades of tireless negotiations into decades of increased prosperity – for both America and the world. Today’s agreement represents a once-in-a-generation achievement for economic diplomacy,” Yellen said in a statement.

The OECD said the minimum rate would give countries about $150 billion in new revenue annually, while tax rights on gains of more than $125 billion would be transferred to countries where large multinationals earn their income.

Ireland, Estonia and Hungary, all low-tax countries, dropped their objections this week as agreements reached a minimum rate cut for multinationals with actual physical business activities abroad.

“no teeth”

But some developing countries are demanding a higher minimum tax rate, saying their interests have been sidelined to accommodate the interests of wealthy countries such as Ireland, which have struck an agreement with a minimum tax rate of no more than 15 percent. refused to sign.

Argentina’s Economy Minister Martin Guzmán said on Thursday that the proposals forced developing countries to choose between “something bad and something bad”.

An official briefed on the talks said Kenya, Nigeria and Sri Lanka did not support the previous version of the deal, but were surprised by Pakistan’s absence.

He said India also had trouble till the last minute, but ultimately backed the deal. There was also discontent among some campaign groups, such as Oxfam, who said the deal would not eliminate tax havens.

“The tax devil is in the details, including a complex web of exemptions,” said Susanna Ruiz, head of Oxfam tax policy. “A hefty 10-year grace period of 15 percent was imposed on global corporate tax at the last minute, and the additional loopholes leave it practically no dent,” Ruiz said in a statement.

Companies with real assets and payroll in a country can ensure that some of their income escapes the new minimum tax rate.

The exemption level decreases over a period of 10 years. The OECD said the deal would next go to the Group of 20 economic powers to be formally endorsed at a meeting of finance ministers in Washington on 13 October and then to the G20 leaders’ summit later in the month in Rome for final approval. Will go Some questions remain about the position in the US, which hinges on domestic tax reform talks in Congress.

Countries that have withdrawn the deal should put it on their law books next year so that it can take effect from 2023, which many officials have said is too stringent. French Finance Minister Bruno Le Maire said Paris would use its EU presidency to translate the agreement into law in the 27-nation bloc during the first half of 2022.

(Except for the title, this story has not been edited by NB staff and is published from a syndicated feed.)

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