HomePoliticsThe OECD approaches the final global compact on corporate tax

The OECD approaches the final global compact on corporate tax

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Most countries in the world are approaching a milestone in a landmark OECD-led deal that will see international companies pay an additional $ 100 billion in corporate taxes and shift more of their tax bills to countries where they actually do business. their business.

In a sign that countries of resistance are joining in, Estonia said late Thursday that it had resolved its concerns that the deal would undermine its entrepreneurs, joining Ireland in signing the emerging deal.

Technical talks to clarify the details of the plan, which was first finalized in July, will conclude in Paris late on Friday. Those close to the negotiations expect significantly fewer holdouts than the nine countries, out of a total of 140, which rejected the common position in July.

The deal would be the first fundamental change to the cross-border corporate tax system in a century and would impose a minimum global tax rate of 15 percent to end what was seen as damaging competition between countries to attract loose profits. Some countries resisted the agreement for fear of damaging economic models based on relatively low taxes.

Not everyone will be happy with the deal once it’s done. People close to the negotiations said Hungary, the remainder of the EU, had not yet made its position clear. Developing countries say they will not yet receive a fair share of the taxable profits of the multinationals that operate in them.

Many countries are also skeptical that the administration of US President Joe Biden can ratify the OECD agreement in Congress. Without that, other countries’ agreement to shelve their own plans for a digital tax on US tech companies would become moot.

Several countries like France, the UK, and India have moved to introduce such taxes on digital services, which target tech companies like Amazon, Google, and Facebook, arguing that these tech giants pay very little local taxes on their profits because they reserve them. in other jurisdictions. .

Still, US Treasury Secretary Janet Yellen has pushed for all unilateral taxes on digital services to be removed as part of the deal. Despite opposition from several countries, the final wording is expected to include an implementation plan outlining the steps for US ratification and dismantling of taxes on digital services on Friday.

“We have to get the deal out of line first and then think about implementation,” said an official close to the talks.

The Irish deal on Thursday overcame a major hurdle. Because of its 12.5 percent corporate rate and its position for many large US companies as its prime location for reporting earnings, it had opposed the plan’s original minimum tax rate of “at least 15 percent.” However, Dublin won the concession to remove the words “at least” from the final text.

Estonia, which had also opposed the deal, also agreed on Thursday night after discovering that “the minimum tax will not change anything for most Estonian businessmen, and. . . it only applies to subsidiaries of large international groups, ”Prime Minister Kaja Kallas said in a statement.

One hurdle, however, is that the EU still needs the unanimity of its 27-member bloc to turn the deal into common EU law, and Hungary still opposes it.

Hungary, which has a tax rate of 9 percent, is pushing for greater tax concessions. Under the current “substance-based exclusion,” multinationals can reduce profits subject to the minimum tax by 7.5 percent over five years. Hungary wants to double the transition period to 10 years.

A final area of ​​controversy concerns the percentage of multinational profits that can be taxed in the countries where they do business.

The July draft agreement sought a range of 20 to 30 percent. Countries with many corporate headquarters want the minimum, while developing countries where multinationals do business have pushed for 30 percent.

Oxfam research estimates that a 20 percent rate would have a net negative impact for 52 developing countries, once taxes on digital services were lowered. France has supported a 25 percent engagement rate.

Still, Argentina has protested the deal. Economy Minister Martín Guzmán said Thursday that developing countries have been “forced to choose between something bad and something worse. The worst thing is not getting anything. Bad is what we are getting. It’s very little “.

If the countries agree to the updated text of the deal on Friday, the deal will be finalized by G20 finance ministers at a meeting next week in Washington before anticipated final approval at a G20 leaders’ summit scheduled for 30-31. October in Rome.

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