Major global business tax deal finally gets deal

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Hungarian Finance Minister Mihaly Varga speaks at a business conference in Budapest, Hungary, March 10, 2020. REUTERS / Bernadett Szabo / File Photo

PARIS, October 8 (Reuters) – A global agreement to ensure that large corporations pay a minimum tax rate of 15% and make it more difficult for them to evade tax was reached after the Ireland, Estonia and Hungary have agreed to sign the elusive landmark deal.

The deal aims to end a four-decade “race to the bottom” of governments that have sought to attract investment and jobs by only slightly taxing multinational companies and allowing them to seek out rates. low taxation.

Negotiations have been going on for four years, moving online during the pandemic, with the backing of a deal from US President Joe Biden and the costs of COVID-19 providing additional momentum in recent months.

Of the 140 countries involved, 136 supported the agreement with developing countries Kenya, Nigeria, Pakistan and Sri Lanka abstaining for now.

The Paris-based Organization for Economic Co-operation and Development, which is leading the talks, said the deal would cover 90% of the global economy.

“Today we have taken another important step towards more tax justice,” German Finance Minister Olaf Scholz said in a statement sent to Reuters.

“We now have a clear path to a fairer tax system, where the world’s big players pay their fair share wherever they do business,” said Scholz’s UK counterpart Rishi Sunak.

The agreement will set a minimum corporate tax rate of 15% and allow governments to tax a larger share of the profits of foreign multinationals.

US Treasury Secretary Yellen called the deal a victory for American families as well as international businesses.

“We have turned tireless negotiations into decades of increased prosperity – both for America and for the world. Today’s agreement represents a unique achievement for economic diplomacy,” Yellen said in a statement.

The OECD said the minimum rate would allow countries to collect around $ 150 billion in new income per year, while taxing rights on more than $ 125 billion in profits would shift to countries where large multinationals earn. their income.

The deal aims to prevent large corporations from making profits in low-tax countries like Ireland regardless of where their clients are located, an issue that has become increasingly urgent with the rise in power of tech giants who easily do business across borders.

Ireland, Estonia and Hungary, all low-tax countries that had resisted, dropped their objections this week as a compromise emerged on a minimum rate deduction for multinationals with actual physical business activities in the country. ‘foreigner.

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But some developing countries seeking a higher minimum tax rate say their interest was set aside to meet the interests of richer countries like Ireland, which had refused to sign a deal with a rate. minimum tax greater than 15%.

Argentine Economy Minister Martin Guzman said on Thursday that the proposals on the table forced developing countries to choose between “something bad and something worse”.

The OECD said the deal would then be submitted to the Group of 20 economic powers for formal approval at a meeting of finance ministers in Washington next Wednesday and then at a summit of G20 leaders at the end of the month. in Rome for final approval.

However, there remains a question about the position of the United States which depends in part on the difficult negotiations on national tax reform underway in Congress.

Countries backing the deal are supposed to put it in their law books next year so it can go into effect from 2023, which many officials close to the talks describe as extremely tight.

Reporting by Leigh Thomas; Additional reporting by Christian Kraemer in Berlin and Elizabeth Piper in London, editing by Catherine Evans and Alexander Smith

Our Standards: Thomson Reuters Trust Principles.


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