Negotiators have revealed China’s approval was the hardest to win for the breakthrough agreement between 130 countries over a global minimum corporate tax rate of 15%
The US, China and the rest of the world’s leading nations have backed plans for new cross-border rules on where and how much multinational companies are taxed.
The Paris-based Organisation for Economic Cooperation and Development, which hosted the talks, said a global minimum corporate income tax of at least 15% could yield around $150 billion in additional global tax revenues annually.
It said 130 countries, representing more than 90% of global GDP, had backed the agreement after two days of talks.
New rules on where the biggest multinationals are taxed would shift taxing rights on more than $100 billion of profits to countries where the profits are earned, it added.
“With a global minimum tax in place, multinational corporations will no longer be able to pit countries against one another in a bid to push tax rates down,” US President Joe Biden said in a statement.
“They will no longer be able to avoid paying their fair share by hiding profits generated in the United States, or any other country, in lower-tax jurisdictions,” he said.
One source close to the talks said it had taken tough negotiations to get Beijing on board. A US administration official said there were no China-specific carveouts or exceptions in the deal.
The minimum corporate tax does not require countries to set their rates at the agreed floor but gives other countries the right to apply a top-up levy to the minimum on companies’ income coming from a country that has a lower rate.
The Group of Seven advanced economies agreed in June on a minimum tax rate of at least 15%. The broader agreement will go to the Group of Twenty major economies for political endorsement at a meeting in Venice next week.
Technical details are to be agreed by October so that the new rules can be implemented by 2023, a statement from countries that backed the agreement said.
NINE HOLD OUT
The nine countries that did not sign were the low-tax EU members Ireland, Estonia and Hungary as well as Peru, Barbados, Saint Vincent and the Grenadines, Sri Lanka, Nigeria and Kenya.
Holdouts risk becoming isolated because not only did all major economies sign up, but so did many noted tax havens such as Bermuda, the Cayman Islands and the British Virgin Islands.
The new minimum tax rate of at least 15% would apply to companies with turnover above a $889-million threshold, with only the shipping industry exempted.
The new rules on where multinationals are taxed aims to divide the right to tax their profits in a fairer way among countries as the emergence of digital commerce had made it possible for big tech firms to book profits in low tax countries regardless where they money was earned.
Companies considered in scope would be multinationals with global turnover above 20 billion euros and a pre-tax profit margin above 10%, with the turnover threshold possibly coming down to 10 billion euros after seven years following a review.
Extractive industries and regulated financial services are to be excluded from the rules on where multinationals are taxed.
- Reporting by Reuters