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US Secretary of State Antony Blinken (frontL) speaks to Director of the Council and Secretariat of the OECD Executive Committee (SGE / CES) Silvia da Rin Pagnetto (frontR) during a closing session during the Ministerial Council meeting of the Organization for Economic Co-operation and Development in Paris on October 6, 2021.
Patrick Semansky | AFP | Getty Images
The Organization for Economic Co-operation and Development on Friday announced a major breakthrough on corporate tax rates, after years of disagreement.
The group of developed countries agreed to a minimum overall corporate tax rate of 15%. This marks a huge shift for small economies, like the Republic of Ireland, which have attracted international business – to a large extent – via a lower tax rate.
“The landmark deal, reached by 136 countries and jurisdictions representing more than 90% of global GDP, will also reallocate more than $ 125 billion in profits from about 100 of the world’s largest and most profitable multinationals to countries around the world,” ensuring that these companies pay a fair share of tax wherever they operate and generate profits, “the OECD said in a statement on Friday.
The breakthrough comes after some changes were made to the original text, including that the 15% rate will not be increased at a later date, and small businesses will not be affected by the new rates.
This helped Ireland – a longtime opponent of increasing corporate tax rates – to join the plan.
Hungary, another long-term skeptic of a global tax deal, also changed its mind after being assured there would be a long implementation period.
Countries must now work out some outstanding details so that the new agreement is ready to go into effect in 2023.
What’s in the deal?
The deal marks a shift in tax policy because not only does it impose a minimum corporate tax rate, but it also requires companies to pay taxes where they operate – not just where they are headquartered.
The exact formula for determining how much companies will owe in different jurisdictions is a detail that has yet to be finalized.
The announcement by international leaders also came in part because of the coronavirus pandemic, which has renewed the need for fairer taxation as governments scramble for new sources of funding.
When elected in 2020, President Joe Biden made it clear that he wanted to tax the rich more, trying to tackle inequality in the United States.
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