136 countries agree to minimum corporate tax rate after Ireland drops its opposition
Inside Sources will be asking local business experts what this means for Utah and its businesses at 1:35 pm.
(CNN) — A group of 136 countries have agreed to a global treaty that would tax large multinationals at a minimum rate of 15% and require companies to pay taxes in the countries where they do business.
Estonia, Hungary and — most notably — Ireland joined the agreement Thursday. It is now supported by all nations in the Organization for Economic Cooperation and Development and the G20. The countries that signed on to the international treaty represent more than 90% of global GDP. Four countries that participated in the talks — Kenya, Nigeria, Pakistan and Sri Lanka — have not yet joined the agreement.
The Biden administration breathed new life into the global initiative earlier this year and secured the support of the G7 countries in June, paving the way for a preliminary deal in July.
Ireland, which had declined to join the initial agreement in July, has a corporate tax rate of 12.5% — a major factor in persuading companies such as Facebook, Apple and Google to locate their European headquarters in the country.
“Today’s agreement will make our international tax arrangements fairer and work better,” said OECD Secretary-General Mathias Cormann in a statement. “This is a major victory for effective and balanced multilateralism.”
Ireland signed up after the preliminary agreement was revised to remove a stipulation that rates should be set at a minimum of “at least 15%.”
“We have secured the removal of ‘at least’ in the text,” Irish Finance Minister Paschal Donohoe said in a statement. “This will provide the critical certainty for government and industry and will provide the long-term stability and certainty to business in the context of investment decisions.”
The new rate would apply to 1,556 multinationals based in Ireland, employing about 400,000 people. More than 160,000 businesses making less than €750 million ($867 million) in annual revenue and employing about 1.8 million people would still be taxed at 12.5%.
“I am confident that Ireland will remain competitive into the future, and we will remain an attractive location and ‘best in class’ when multinationals look to investment locations,” Donohoe said.
Alongside a minimum corporate tax rate, the pact includes provisions to ensure that multinational companies pay tax where they generate sales and profits, and not just where they have a physical presence. That could have major ramifications for tech companies such as Google and Amazon, which have amassed vast profits in countries where they pay relatively little tax.
Now comes the hard part
The OECD expects implementation of the agreement to begin in 2023. But even with Ireland and other previous holdouts now on board, the deal still requires countries to pass domestic legislation.
“Like the Paris Agreement on climate, concluding technical talks after firming political support was the easier part, implementing the pact will prove significantly more challenging,” analysts at political risk consultancy Eurasia Group wrote in a note this week.
The treaty will need to be ratified via a two-thirds majority in the US Senate, which is unlikely given that it allows foreign countries to tax US companies, the Eurasia Group analysts said. An alternative could be “another major tax bill,” but the United States is unlikely to consider that until 2025, they added.
“While European finance ministers are hoping [Treasury Secretary Janet ] Yellen can deliver swift US implementation through a legislative shortcut, that scenario remains unlikely and — if at all possible — it would not materialize until after the next presidential election,” they wrote.
Delayed implementation by Washington could in turn prolong digital taxes on US tech companies introduced by European countries such as France and could even fuel the adoption of digital levies at EU level, sparking trade spats between the United States and Europe.
“Implementation of the OECD deal will also be a bellwether of EU-US capabilities to boost ongoing but contentious efforts to collaborate across a host of trade and tech issues,” the Eurasia analysts said.
— Julia Horowitz and Chris Liakos contributed reporting.
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