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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 has agreed to an overall minimum corporate tax rate of 15 percent. 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 over 90% of global GDP, will also reallocate more than $ 125 billion in profits from around 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.
In a statement released Friday afternoon, President Joe Biden said the new rule “would finally level the playing field.”
“For decades, American workers and taxpayers have paid the price for a tax system that has rewarded multinational corporations for sending jobs and profits overseas. This race to the bottom has not only hurt American workers, it has put many of our allies at a competitive disadvantage as well, ”Biden’s statement read.
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.
The deal is “a unique achievement for economic diplomacy,” Treasury Secretary Janet Yellen said in a statement.
Yellen applauded the many countries that “have decided to end the race to the bottom in business taxation” and expressed hope that Congress will use the reconciliation process to quickly put the deal into practice in the United States. .
“The making of international tax policies is a complex issue, but the obscure language of today’s deal belies how simple and broad the issues are: when this deal is passed, Americans will find it in the economy global a much easier place to get a job, earn a living, or develop a business, ”said Yellen’s statement.
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.
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