OECD applauds ‘great victory’ as resisting countries back corporate tax reform

A global push to enact a minimum international tax on large corporations came close to reality on Friday when one of the latest holdouts, Hungary, agreed to join a reform that now has 136 countries.

The OECD-negotiated deal, which sets a global tax of 15 percent, aims to prevent international corporations from cutting tax bills by registering in countries with low rates.

“Today’s agreement will make our international tax agreements fairer and work better,” said OECD Secretary General Mathias Cormann. “This is a great victory for an effective and balanced multilateralism.”

Praising the deal, French Finance Minister Bruno Le Maire said it “paves the way for a real tax revolution,” ensuring that “digital giants pay their fair share of taxes in countries, like France, where they make a profit. “.

Hungary’s announcement came a day after another key opponent, Ireland, whose low tax rate has attracted companies like Apple and Google, relented and agreed to join the global effort.

With Hungary, 136 countries accounting for 90 percent of the world’s gross domestic product have signed up, the Paris-based Organization for Economic Cooperation and Development said. Estonia also joined the reform on Thursday.

The OECD said Kenya, Nigeria, Sri Lanka and Pakistan are the last to cut out of 140 countries that have negotiated the tax. Pakistan had been on a previous list of signatories.

The organization said countries aim to sign a multilateral convention in 2022, with a view to implementing the reform in 2023.

Hungary secures commitments

The Hungarian government said in a statement that it agreed to join the global tax after obtaining concessions that include a 10-year transition period for a special rate to remain in force.

Hungary has a tax rate of nine percent, even lower than Ireland’s 12.5 percent.

“A compromise has been reached that we can wholeheartedly join,” said Hungarian Finance Minister Mihaly Varga. “Hungary will be able to collect the global tax using a specific solution.”

The talks got a boost earlier this year when the administration of US President Joe Biden backed a global minimum tax rate of at least 15 percent to end a “race to the bottom” between nations.

The coronavirus pandemic has also added urgency to reforms, as countries need new sources of revenue to pay for the huge stimulus programs that were implemented during last year’s global recession.

$ 150 billion for governments

The OECD said in July that 130 countries had agreed to a tax of “at least” 15 percent.

Ireland eventually backed down after the phrase “at least” was removed from the reform, as it feared it might have led to future rate hikes.

Finance Minister Paschal Donohoe said Ireland would increase its corporate tax rate from 12.5 to 15 percent for multinationals with more than 750 million euros ($ 867 million) in annual sales.

Ireland’s low tax has attracted large numbers of pharmaceutical and tech companies, but has also sparked accusations that the nation acts as a tax haven.

The OECD says a global minimum corporate tax rate of 15 percent could add $ 150 billion to government coffers annually.

In addition to the minimum rate, the 136 countries also agreed to reallocate more than $ 125 billion of profits from around 100 of the world’s most profitable multinationals to countries around the world.

G20 leaders are expected to sign the agreement at a summit in Rome in late October.

“It is a far-reaching agreement that ensures that our international tax system is fit for purpose in a digitized and globalized world economy,” Cormann said.

“We must now work quickly and diligently to ensure the effective implementation of this important reform.”

( Jowhar with AFP)

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