March 7, 2022

Tax havens be warned: 130 countries just agreed in principle to set a global minimum corporate tax rate | CBC News

Some 130 countries have backed a global minimum tax as part of a worldwide effort to keep multinational firms from dodging taxes by shifting their profits to countries with low rates.

The agreement announced by the Organization for Economic Cooperation and Development Thursday also provides for taxing the largest global companies in countries where they earn profits through online businesses but may have no physical presence.

The agreement followed a proposal from U.S. President Joe Biden for at least a 15 per cent rate, an initiative that propelled the talks toward meeting a deadline for a deal by the middle of this year. The deal now will be discussed by the Group of 20 countries at meetings later this year in hopes of finishing the details in October and implementing the agreement in 2023.

Under the deal, countries could tax their companies’ foreign earnings if they go untaxed through subsidiaries in other countries. That would remove the incentive to use accounting and legal schemes to shift profits to low-rate countries since the profits would be taxed at home anyway.

Yellen backs plan

U.S. Treasury Secretary Janet Yellen said the deal  moves the world a step closer to ending a “race to the bottom ” on taxation and allows for critical investments in infrastructure, education and pandemic relief.

Yellen said in a statement after OECD negotiations this week that the agreement “will ensure that corporations shoulder a fair share of that burden.” She added that countries in the agreement represent more than 90 per cent of global GDP.

Many technology companies, including Apple, have large presences in Ireland because the country has very attractive tax rates for intellectual property. (Dado Ruvic/Reuters)

Not all of the 139 countries that joined the talks signed on to the deal. The proposal to tax countries where they have sales but no physical presence excluded extractive companies such as oil and mining and regulated banks.

The deal now faces more technical work to fill in details and review by the Group of 20 countries, which represent some 80 per cent of the global economy. More discussion is expected at the meeting of the G-20 finance ministers in Venice next week, and then at the full G20 summit of country leaders in October. The proposal to tax companies where they have revenue but no physical presence would require countries to sign up for a multilateral convention.

In the U.S., Biden has proposed a 21 per cent minimum rate on overseas earnings of big U.S. companies to deter them from shifting profits to tax havens. Biden’s US tax must first pass Congress, where the Democratic president has only a narrow majority.

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