Sunday, July 4, 2021 

Economy and business

Related articles


4 July 2021: 130 OECD countries agree to back global corporate tax rate
30 June 2021: 'Each makes the other more difficult to recover from': University of Sussex professor L. Alan Winters speaks to Wikinews on trade, COVID-19, Brexit
16 June 2021: Wikinews interviews Victor Kline, leader of newly registered The New Liberals party in Australia
23 April 2021: Irish Finance Minister Donohoe criticises OECD's global minimum corporate tax rate
17 April 2021: People protest in Berlin against German Court overturning five-year rent cap

Collaborate!

Pillars of Wikinews writing
Writing an article


A portrait of OECD Secretary General Mathias Cormann, then-leader of the government in the Senate of Australia and minister for finance, in 2016. Image: Commonwealth of Australia.
On Thursday, 130 countries and jurisdictions in the 139-member Organisation for Economic Co-operation and Development (OECD) agreed to support an overhaul to the international taxation system that would introduce a global minimum corporate tax rate, committing most of the world's economies to a two-pillar "solution".

The states which agreed to the plan's key components included regional divisions such as Gibraltar, Hong Kong and Montserrat, tax havens according to the Associated Press (AP) Bermuda and the Cayman Islands and all Group of Twenty (G20) countries, according to an OECD list, but not Barbados, Estonia, Hungary, Ireland, Kenya, Nigeria, Sri Lanka and Saint Vincent and the Grenadines. Peru also abstained, but due to its lack of government, reported The Guardian.

Those that have signed represent over 90% of global gross domestic product (GDP). A press release by the OECD called the framework the result of "negotiations coordinated by the OECD for much of the last decade" and criticises the "century-old international tax system" for being "no longer fit for purpose". The plan was backed by United States president Joe Biden according to multiple sources, and comes after a similar Group of Seven deal on international taxation agreed on June 5.

The plan, officially the "OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting", adopted a pillared approach. An implementation plan is to be finalised by October.

If implemented, the first would force multinational enterprises (MNEs) with global turnover exceeding €20 billion and profitability above 10% to reallocate tax on over USD100 billion in profit from their home markets to each market jurisdiction it derived at least one million or 250 thousand euros from, depending on its GDP. An OECD statement confirmed the threshold for affected MNEs under pillar one may change to those exceeding ten billion euros in turnover, dependent on the results of a review to be conducted in seven years' time.

The second pillar consists of two "Global anti-Base Erosion Rules" allocating top-up tax of a minimum of 15%, and one treaty-based "Subject to Tax Rule" to be made effective in 2023.

The effects of both pillars, though dependent on the plan's final framework, was estimated by the OECD to increase global corporate income tax (CIT) reserves by between 1.9 and 3.2%, or 50 and 80 billion USD. If including the existing US tax on global intangible low-taxed income, the growth of CIT reserves would be between 2.3 and 4%, or 56 and 102 billion USD. This would also protect against tax avoidance practices the OECD says costs countries between 100 and 240 billion USD in lost revenue per year, according to the AP.

The OECD also projects a "relatively small" negative effect on investment and activity equivalent to 0.1% of GDP in the medium- to long-term. Other concerns cited include the potential governments may lose the ability to use tax incentives for policy objectives, as well as the cost of ensuring compliance.

Countries opposed include Hungary and Ireland who have, according to Politico, sought lower rates to attract foreign direct investment, and have, in addition to Estonia according to the BBC, at least some corporate rates below the proposed floor of 15%. The Irish and Hungarian headline corporate rates stand at 12.5 and 9%, respectively, according to The Guardian, with Ireland standing to lose over two billion euros in the next four years according to Raidió Teilifís Éireann (RTÉ). A PricewaterhouseCoopers tax summary mentions a tax exemption on undistributed corporate funds in Estonia, in addition to instances where a 14% rate is applicable.

OECD secretary general Mathias Cormann said in the press release "this historic package will ensure that large multinational companies pay their fair share of tax everywhere", adding while it "does not eliminate tax competition [...] it does set multilaterally agreed limitations".

Biden said the deal means the world is in "striking distance of full global agreement to halt the race to the bottom", which US treasury secretary Janet Yellen described as a race "no nation" has won, according to The Guardian. Finance minister for France Bruno Le Maire called it the "most important international tax agreement in a century", according to the BBC.

According to RTÉ, finance minister for Ireland Paschal Donohoe said while he "expressed Ireland's reservation", he remains "committed to the process" and assures the global community "Ireland will continue to play our part in reaching a comprehensive and, indeed, historic agreement". According to Reuters, on June 9, Hungarian prime minister Viktor Orbán called the proposal "absurd", and insisted the country's low rates "is not meant to attract certain companies to declare their taxes here", nor makes it "a tax haven".

Venice, Italy is to host G20 finance ministers and central bank governors at a "G20 High-Level Tax Symposium" on July 9, according to the Italian Ministry of Economy and Finance.






Have an opinion on this story? Share it!



Related news[edit]
"Irish Finance Minister Donohoe criticises OECD's global minimum corporate tax rate" — Wikinews, April 23, 2021
"Tax evasion investigators raid Google's Paris headquarters" — Wikinews, May 25, 2016
"Calls for corporate tax reform in Australia goes unheeded" — Wikinews, May 12, 2006
Sources[edit]
"Overview of main findings" — OECD, July 1, 2021 (date of access)
"Members of the OECD/G20 Inclusive Framework on BEPS joining the Statement on a Two–Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy as of 1 July 2021" — OECD, July 1, 2021 (date of access) (PDF)
"Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalisation of the Economy" — OECD, July 1, 2021 (PDF)
"G20 Finance Ministers and Central Bank Governors Venice Meeting and side events" — OECD, July 1, 2021
"130 countries and jurisdictions join bold new framework for international tax reform" — Ministero dell’Economia e delle Finanze, July 1, 2021
Richard Partington. "Global tax reform: 130 countries commit to minimum corporate rate" — The Guardian, July 1, 2021
William Goodbody. "Ireland not among 130 countries to back global corporation tax reform deal" — Raidió Teilifís Éireann, July 1, 2021
"Global tax overhaul backed by 130 countries" — BBC News Online, July 1, 2021
David McHugh, Angela Charlton. "130 countries back deal on global minimum tax for companies" — Associated Press, July 1, 2021
Mark Scott, Bjarke Smith-Meyer, Toby Eckert, Giorgio Leali. "Global tax deal expected by end of June" — Politico, June 17, 2021
"Orban says global minimum tax plan 'absurd', Hungary may look at options" — Reuters, June 9, 2021
Phillip Inman, Mark Savage. "Rishi Sunak announces ‘historic agreement’ by G7 on tax reform" — The Guardian, June 5, 2021
"Corporate - Taxes on corporate income" — PricewaterhouseCoopers, January 28, 2021





Share this: 

Source: Wikinews