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An effort to implement the biggest overhaul of the international tax system in a century gained momentum on Friday when Hungary, one of the last holdouts in a group of more than 130 countries, said it would agree to adopt a global minimum tax rate of 15%. .
A deal, due to be announced later on Friday, would represent the culmination of years of tense negotiations that were relaunched this year after President Biden took office and the United States renewed its commitment to the multilateralism. Finance ministers rushed to finalize the deal, which they hope will reverse a decades-long race to lower corporate tax rates that have depleted countries of the income they need to build new ones. infrastructure and fight against global health crises.
In addition to Hungary, which had asked for softer terms, two other countries which had refused to support the agreement for fear that their economies would be damaged signed. Hours before the announcement of Hungary, Ireland and Estonia, two major holdouts, ratified the agreement.
The negotiations were overseen by the Paris-based Organization for Economic Co-operation and Development.
The deal would include a minimum 15% corporate tax rate, which had been proposed by the United States, and rules that would force tech giants like Amazon and Facebook and other big global companies to pay. taxes in countries where their goods or services are sold, even if they are not physically present there.
The deal would represent a radical change in the way the world’s largest companies have been taxed for decades and will likely see them paying more taxes while spreading taxable income more equitably among the countries where these companies sell. . Until now, profits have been heavily taxed where companies have a physical presence.
Countries have set a goal of fully activating the agreement by 2023, as it will take time for countries to change their tax laws and for international tax treaties to be updated.
The spray talks gained momentum last May when the United States agreed to agree to a minimum tax of at least 15 percent, which was lower than the 21 percent it was hoping to achieve.
At international forums over the summer, negotiators debated potential exclusions, an implementation period and how the deal would be applied once enacted.
One of the biggest questions was how the European Union was going to coax recalcitrant countries such as Ireland, Estonia and Hungary, whose business models were built around low tax rates, to sign . Without unanimity within the European Union, the agreement cannot be promulgated.
With these three countries now joining the deal, the deal is on its way to becoming a reality.
Hungary said it would sign the deal after Prime Minister Viktor Orban, who is at odds with the European Union on unrelated rule of law issues, called for better terms to ensure that the The country’s economy would not lose a competitive advantage.
Hungary has long offered a 9% corporate tax rate to attract investment. He snatched an exemption that would allow multinationals to cut profits subject to minimum tax for a 10-year transition period, instead of the five-year period originally proposed.
“We have succeeded in making a breakthrough on the global minimum tax agreement,” said Finance Minister Mihaly Varga. “So Hungary could join the deal wholeheartedly. “
Ireland returned after pledging that its small businesses, with annual revenues of less than € 750million, would not face the new tax hike. He also convinced his counterparts to remove the words “at least” from an OECD draft declaration, ensuring that the minimum tax would not be increased.
“I am convinced that Ireland’s interests are best served under the deal thanks to my contacts and negotiations with international stakeholders in Europe, the United States and beyond,” Paschal Donohoe said Thursday. , Irish Minister for Finance.
And Estonia on Thursday announced its support for the deal after resolving concerns that a minimum tax could hurt the country’s entrepreneurs.
The deal is expected to be finalized next week in Washington by finance ministers from the Group of 20 largest economies, and national leaders are expected to sign when they meet for a summit in Rome in late October.
But this is just the start of a bigger fight to make the pact work, so governments can start collecting the taxes they say they badly need to help revitalize their economies in the wake of the pandemic.
Congress has yet to ratify any deal, and European governments are anxiously watching whether President Biden can push through legislation to ensure the United States complies with the deal it helped negotiate.
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