The OECD stated on Thursday (July 1) that a total of 130 countries have agreed to implement global tax reforms to ensure that multinational companies pay their fair share wherever they operate, but some EU countries have refused to sign.
The Organization for Economic Cooperation and Development said in a statement that once the transaction is implemented, global companies including US giants Google, Amazon, Facebook and Apple will be taxed at a tax rate of at least 15%.
Once the new tax system takes effect, it will increase the fiscal revenue of global governments by about 150 billion U.S. dollars. The OECD expressed its hope that it will take effect in 2023.
The OECD stated: “The framework updates the key elements of the century-old international tax system, which is no longer applicable to the globalized and digitalized 21st century economy.”
The formal agreement was reached after the approval of the G7 Group of Rich Countries last month, and negotiations are now moving to the G20 Group Meeting of Advanced and Emerging Economies held in Venice, Italy from July 9 to 10.
U.S. President Joe Biden said that the latest agreement “makes us a far cry from reaching a full global agreement to stop competition from the bottom of corporate taxes.”
US Secretary of the Treasury Janet Yellett called it “historic.”
Germany, another proponent of tax reform, praised it as “a huge step towards tax justice,” while France said it was “the most important tax treaty in a century.”
The British Finance Minister Rishi Sunak, who is the rotating chairman of the G7, said, “The fact that 130 countries around the world, including all G20s, have joined this fact marks another step in our mission of global tax reform.”
‘It is in everyone’s interest’
However, the organization said that the EU’s low-tax countries Ireland and Hungary refused to sign agreements reached within the OECD framework, highlighting the lingering differences in global taxation.
These two countries are part of the EU group of countries, which also includes Luxembourg and Poland, which rely on low tax rates to attract multinational companies and develop their economies.
Ireland is home to EU technology giants Facebook, Google and Apple, and its corporate tax rate is only 12.5%.
Irish Finance Minister Paschal Donohoe warned that the new regulations may cost Ireland 20% of corporate income.
On Thursday, Donohue said that Ireland still “widely supports” the transaction, but does not support the 15% tax floor.
“There are still many things that need to be finalized before a comprehensive agreement is reached,” he said, adding that Ireland will “constructively participate” in further discussions.
The implementation agreement is planned to be signed in October.
To date, 9 of the 139 participants in the negotiations have not signed the agreement.
But in the process of providing tax incentives to key industries, China, whose position has been closely watched, supports the agreement.
OECD Secretary-General Matthias Koman said: “It is in everyone’s interest to reach a final agreement among all inclusive framework members as planned later this year.”
“This plan does not eliminate tax competition because it should not eliminate tax competition, but it does set multilaterally agreed restrictions on it,” Koman said, adding that “it also accommodates various interests at the negotiating table. Including the interests of small economies and developing jurisdictions”.
A “fairer” global economy
The finance ministers believe that the minimum tax rate is necessary to prevent competition among countries over who can provide the lowest tax rate to multinational companies.
For Biden, the global tax treaty will help maintain the competitiveness of the United States, because he proposes to increase domestic corporate taxes to pay for infrastructure and employment programs worth about $2 trillion.
Biden’s tax plan may face an uphill battle in Congress, and he praised it as “an important step forward in pushing the global economy forward and making workers and middle-class families more equitable in the United States and around the world.”
He pointed out that those countries that signed contracts accounted for more than 90% of the world economy.
The OECD statement stated that the package “will provide much-needed support to governments that need to raise the necessary revenue” to fix the budget and invest in measures to support the post-Covid recovery.
The charity Oxfam also stated that the transaction did not reach the level of taxation required to provide a sufficient share of additional taxes for poorer countries.
Oxfam called the agreement “biased to the rich and totally unfair” and stated that the signatories had missed “a once-in-a-lifetime opportunity to build a more equal world.”