Europe

OECD hails ‘major victory’ as global tax holdouts join reform

BUDAPEST (AFP) – A global push to enact a minimum international tax on big corporations moved closer to reality on Friday (Oct 8) as one of the last holdouts, Hungary, agreed to join a reform that now counts 136 countries.

The OECD-brokered deal, which sets a global tax of 15 per cent, is aimed at stopping international corporations from slashing tax bills by registering in nations with low rates.

“Today’s agreement will make our international tax arrangements fairer and work better,” said OECD secretary-general Mathias Cormann. “This is a major victory for effective and balanced multilateralism.”

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

With Hungary, 136 countries representing 90 per cent of global gross domestic product have now signed up, the Paris-based Organisation for Economic Co-operation and Development said. Estonia also joined the reform on Thursday.

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

The organisation said countries are aiming to sign a multilateral convention in 2022, with an eye on implementing the reform in 2023.

Hungary secures compromises

The Hungarian government said in a statement that it agreed to join the global tax after securing concessions including a transitional period of 10 years for a special rate to remain in place.

Hungary has a 9 per cent tax rate, even lower than Ireland’s 12.5 per cent.

“A compromise has come about that we are able to join wholeheartedly,” Hungarian Finance Minister Mihaly Varga said. “Hungary will be able to collect the global tax using a targeted solution.”

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

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

US$150 billion for governments

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

Ireland finally backed down after the phrase “at least” was removed from the reform as it feared that it could have led to future increases of the rate.

Finance minister Paschal Donohoe said Ireland would raise its corporate tax rate from 12.5 to 15 per cent for multinationals with more than 750 million euros (S$1.1 billion) in annual sales.

Ireland’s low levy has attracted an outsized number of pharma and tech firms but also drawn accusations that the nation acts as a tax haven.

The OECD says a global minimum corporate tax rate of 15 per cent could add US$150 billion (S$200 billion) to government coffers annually.

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

Group of 20 leaders are expected to sign off on the deal at a summit in Rome in late October.

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

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

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