An international effort to create the most sweeping changes to the global tax system in a century gained significant momentum on Thursday when 130 nations announced they had agreed to a blueprint that would ensure multinational corporations pay a fair share of tax wherever they operate.
The deal, overseen by the Paris-based Organization for Economic Cooperation and Development, is intended to end what Treasury Secretary Janet L. Yellen called a 30-year “race to the bottom” on corporate tax, and includes a 15 percent minimum corporate tax rate put forward by the United States, as well as a crucial new tax system for digital giants like Apple and Amazon.
“Today marks an important step in moving the global economy forward to be more equitable for workers and middle class families in the United States and around the world,” President Biden said in a statement. “With a global minimum tax in place, multinational corporations will no longer be able to pit countries against one another in a bid to push tax rates down and protect their profits at the expense of public revenue.”
The historic agreement would generate an estimated $150 billion in additional tax revenue each year, and could reshape global commerce and shore up public finances that have deteriorated in numerous countries after more than a year of grappling with the pandemic.
It could also end a brewing global trade war over the taxation of companies like Amazon, Google, Facebook and others that earn revenue online in countries where they have little or no physical presence.
It proposes a new system for determining which countries could tax those companies’ profits, and how, and promises to head off what had been an escalating series of nations levying taxes on American technology companies, with both the Trump and Biden administrations threatening retaliatory tariffs in response.
The deal comes after four years of fraught international negotiations and, if enacted, would essentially stop countries from slashing their tax rates, a move that the United States and other high-tax jurisdictions say has deprived them of funding for crucial investments like infrastructure and education.
Some details still need to be worked out, including how to execute the plan, which is expected to be finalized in October, the O.E.C.D. said. But the organization says it expected taxation rights on more than $100 billion of profits to be reallocated from the companies’ home countries to the other markets where they operate.
The 15 percent minimum tax rate is estimated to generate $150 billion in additional tax revenue each year, the organization said. Much of that could go to large emerging markets like India. But a significant chunk would also go to big European countries like France and Germany, which have long complained that rules allowing companies to avoid tax have deprived governments of money needed to fund health care systems, infrastructure and other public services.
“The framework updates key elements of the century-old international tax system, which is no longer fit for purpose in a globalized and digitalized 21st century economy,” the O.E.C.D. said in a statement.
The agreement is a victory for the Biden administration, which reinvigorated the negotiations this year with a new proposal for a global minimum tax. But it also builds on groundwork laid by Treasury Department negotiators under President Donald J. Trump, including former Treasury Secretary Steven Mnuchin.
Although big countries including China and Russia signed on, the accord is not quite a done deal, with smaller nations that have long benefited from being tax havens refusing to join.
Of nine countries that resisted the agreement, one name stood out: Ireland, which is reluctant to lose its status as a major tax haven in Europe. Its low corporate tax rate of 12.5 percent helped fuel its so-called Celtic Tiger economy, attracting Apple, Google, Pfizer and a who’s who of U.S. multinationals that have brought billions in tax income to government coffers.
Ireland’s finance minister, Paschal Donohue, issued no statement Wednesday but has let it be known that Ireland will remain engaged in international negotiations. The government in Dublin has been waiting to see whether the minimum tax proposal of at least 15 percent will be validated by Congress.
Besides Ireland, eight other countries also declined to sign on: Barbados and Saint Vincent and the Grenadines, the last two recalcitrant tax havens in the Caribbean; Hungary and Estonia, which are keen to preserve their in-house tax exemption regimes to attract foreign capital; as well as Kenya, Nigeria, Peru and Sri Lanka, which remain dissatisfied.
O.E.C.D. officials had hoped to seal the framework last year, but their efforts were delayed by the pandemic and by a twist in the Trump administration’s stance in the negotiations, which effectively sought to allow some American companies to choose their tax treatment worldwide as part of any deal. Mr. Biden’s team dropped that insistence, as negotiators had hoped.
Ms. Yellen cast the framework as a victory for tax fairness, saying that decades of competition among countries to reduce tax rates to woo corporations across national lines have “not only failed to attract new businesses, they have also deprived countries of funding for important investments like infrastructure, education and efforts to combat the pandemic.”
In place of that race to reduce rates, she said, “America will enter a competition that we can win; one judged on the skill of our workers and the strength of our infrastructure. We have a chance now to build a global and domestic tax system that lets American workers and businesses compete and win in the world economy.”
Conservative economists — including some who served in Mr. Trump’s administration — have praised global efforts to reduce corporate taxes, predicting they would bolster economic growth and worker incomes. The top Republican on the Ways and Means Committee, Representative Kevin Brady of Texas, slammed the framework and criticized Mr. Biden on Thursday.
“This is a dangerous economic surrender that sends U.S. jobs overseas, undermines our economy and strips away our U.S. tax base,” Mr. Brady said.
And critics said the plan was hardly watertight.
Alex Cobham, chief executive of the Tax Justice Network, a advocacy group based in London that fights tax avoidance, said that although a higher effective minimum tax rate would benefit most countries — including the richest — the O.E.C.D. plan “gives little to lower-income countries, and leaves much of the incentive for profit shifting intact.”
Challenges remain for the agreement and for Mr. Biden’s goal of reducing the offshoring of profits in order to escape taxation in the United States, which the president acknowledged in his statement.
The Biden administration has proposed a new tax plan that would effectively punish companies with headquarters in those holdout countries but that operate in the United States, by raising their tax liabilities significantly. Mr. Biden has pushed Congress to approve that tax change, along with an increased minimum tax on revenue earned by American companies outside the United States, to help fund his $4 trillion economic agenda that he hopes to pass this summer.
“Building on this agreement will also require us to take action here at home,” Mr. Biden said Thursday. “We must adopt the global minimum tax, among other measures I have proposed, to make sure corporations pay their fair share.”
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