After an agreement on the technical details of the global minimum tax rate, the next step is for finance ministers from the Group of 20 economic powers to formally endorse the deal, paving the way for its adoption by G20 leaders at a summit in late October. Since this morning, almost the entire global economy has decided to end the race to the bottom in corporate taxation. Instead, more than 130 countries – including the G20 – have agreed on a new specific set of provisions to uniformly tax the income of multinationals, including a global minimum tax. The OECD, which led the negotiations, estimates that the minimum tax will generate $150 billion in additional global tax revenue per year. ”I am pleased that Ireland`s interests under the agreement are better served through my contacts and negotiations with international stakeholders in Europe, the United States and beyond,” Paschal Donohoe, Ireland`s finance minister, said in a statement on Thursday. There are three reasons for this. First, the priorities that President Biden has set for taxes on U.S. companies` foreign profits take a different approach than the one agreed upon today. Second, the current Global Tax on Intangible Income (GILTI) and the Base Erosion and Anti-Abuse Tax (BEAT) are only roughly aligned with the new agreement, but GILTI could benefit from special treatment in broad outline. Third, amending the tax treaty requires 67 votes in the Senate, which will prove difficult if there is not broad bipartisan support for the new rules. The deal is expected to be finalized next week in Washington by finance ministers from the Group of 20 Largest Economies, and leaders are expected to sign when they meet for a summit in Rome in late October. Countries have set a goal of fully activating the agreement by 2023, as it will take some time for countries to amend their tax laws and international tax treaties to be updated. One of the biggest questions was how the European Union would persuade recalcitrant countries like Ireland, Estonia and Hungary, whose business models are based on low tax rates, to join.
Without unanimity in the European Union, the agreement could not be implemented. ”Today`s agreement will make our international tax arrangements fairer and work better,” Mathias Cormann, the organization`s secretary-general, said in a statement. ”We must now work quickly and conscientiously to ensure the effective implementation of this major reform.” Democrats expect to be able to pass a global tax increase along party lines with a legislative process called a budget vote. Republicans disagree, and on Friday, several Republican senators warned that the administration`s negotiations ”appear to undermine the Senate`s constitutional authority as well as the U.S. role as a reliable trading partner.” The Paris-based institution described the ”historic agreement” as an important step on the road to ending where decades of countries have undermined their neighbors on taxes, saying 136 of the 140 jurisdictions involved in the negotiations have joined the agreement. On Friday, Hungary joined two other key opponents, Ireland and Estonia, in accepting the plan. Kenya, Nigeria, Pakistan and Sri Lanka have not signed the agreement. The OECD said four countries – Kenya, Nigeria, Pakistan and Sri Lanka – had not yet joined the agreement, but that the countries behind the agreement together accounted for more than 90% of the global economy. The agreement comes ahead of meetings between G20 finance ministers in Washington next week, as well as a meeting of G7 finance ministers chaired by Rishi Sunak on his first trip to the UNITED States since his appointment as British chancellor. The second pillar will set an overall minimum tax rate of 15% for large companies. While the plan would not eliminate tax competition, the agreement sets out rules that limit the race to the bottom when it comes to taxes. The OECD said it would raise an additional $150 billion each year for governments around the world.
The deal would represent a fundamental shift in the way the world`s largest companies have been taxed for decades, and would likely push them to pay more taxes, while revenues would be more equitably distributed among the countries where those companies make sales. .
