A global agreement to ensure that large companies pay a minimum tax rate of 15% and make it harder for them to avoid taxes has been reached by 136 countries, the Organisation for Economic Co-operation and Development said on Friday. The second pillar model rules also deal with the treatment of the acquisition and disposal of group members and contain specific rules to deal with certain holding structures and tax neutrality regimes. Finally, the rules address administrative aspects, including disclosure requirements, and provide transitional provisions for multinational companies subject to the global minimum tax. The 136 jurisdictions have adhered to the Declaration on the Two-Pillar Solution to Address the Tax Challenges Posed by the Digitalisation of the Economy, which updates and concludes a July 2021 political agreement between members of the Inclusive Framework that will fundamentally reform international tax rules. This agreement will transform the global economy into a more prosperous place for American businesses and workers. Instead of competing for our ability to offer lower prices, America will now compete on our people`s skills, our ideas, and our ability to innovate – which is a race we can win. French Finance Minister Bruno Le Maire called the deal « historic » and said in an interview that « we should not underestimate the political and financial consequences. » Mathias Cormann, secretary-general of the OECD, said the plan was a « great victory » for international cooperation. « This is a far-reaching agreement that ensures that our international tax system achieves its purpose in a digitized and globalized global economy. We must now work quickly and conscientiously to ensure the effective implementation of this major reform.
« Facebook has long called for reform of global tax rules, and we recognize that this could mean paying more taxes in different places, » said Nick Clegg, Facebook`s vice president of global affairs. « We are pleased with the emergence of an international consensus. » The global minimum tax rate and other regulations aim to end decades of tax competition between governments to attract foreign investment. « Today`s agreement will make our international tax arrangements fairer and work better, » Mathias Cormann, the organization`s secretary-general, said in a statement. « We must now work quickly and conscientiously to ensure the effective implementation of this major reform. » The rules of the second pillar model provide governments with a clear model for the further development of the two-pillar solution to address the fiscal challenges posed by the digitalisation and globalisation of the economy agreed by 137 countries and countries in October 2021 in the OECD-G20 Inclusive Framework on BEPS. « This morning, virtually the entire global economy decided to end the race to the bottom on corporate taxation, » Treasury Secretary Janet L. Yellen said in a statement. The agreement calls on countries to bring it into force in 2022 so that it can enter into force by 2023, an extremely tight deadline given that it has taken years to implement previous international tax treaties. The Biden administration issued a statement with warm approval of the deal, though it may be difficult to get Congress to implement this policy.
Since this morning, almost the entire global economy has decided to end the race to the bottom in corporate taxation. Instead, more than 130 countries – including the G20 – have agreed on a new specific set of provisions to uniformly tax the income of multinationals, including a global minimum tax. The 15% tax floor applies to companies with a turnover of more than €750 million (about US$867 million) and is therefore effectively limited to the world`s largest companies. If one of these companies transfers its profits to a low-tax country, it will be forced to pay « top-up tax » in the country where it is headquartered, forcing it to pay the difference to reach the minimum of 15 percent, the Washington Post explains. The world`s most powerful nations agreed on Friday to a sweeping overhaul of international tax rules, with officials backing a global minimum tax of 15 percent and other changes aimed at cracking down on tax havens that have deducted much-needed revenue from countries. International tax rules apply to income earned by companies from their activities and sales abroad. Tax treaties between countries determine which country generates tax revenues, and anti-avoidance rules are introduced to limit the gaps that companies use to minimize their global tax burden. The 2nd pillar is the global minimum tax.
It contains two main rules and then a third rule for tax treaties. These rules are intended to apply to companies with a turnover of more than €750 million. In a statement, U.S. Treasury Secretary Janet Yellen hailed the « historic agreement, » which she said would « end the race to the bottom that is damaging to corporate taxation. » 136 countries and jurisdictions, which account for 94% of global GDP, have accepted the new rules, according to the OECD. On Friday, Hungary joined two other key opponents, Ireland and Estonia, in accepting the plan. Kenya, Nigeria, Pakistan and Sri Lanka have not signed the agreement. Get the latest global tax news and analysis right in your inbox. Hungary has long proposed a corporate tax rate of 9% to attract investment. An exemption was applied which would allow multinationals to reduce the minimum taxable profits for a transitional period of 10 years instead of the five years initially proposed […].
