Minimum corporate tax rate of 15 per cent gets approval from more than 130 countries

- Advertisement -


Several countries in the world agreed on Friday to a new cross-border corporate tax regime that would set a global minimum rate of around 15 percent while forcing large multinationals to pay taxes, a historic opportunity for governments. will give impetus. Collect as much of the wealth as possible generated by the world’s richest companies.

- Advertisement -

The Organization for Economic Cooperation and Development announced the details on Friday, just hours after three skeptics of the deal – Ireland, Estonia and Hungary – finally agreed to its terms. Ireland in particular has long been seen as a tax haven due to the 12.5 percent tax rate for large multinationals. Apple Inc., Facebook Inc. and Google parent Alphabet Inc. The big tech companies that have set up head offices there are regularly facing allegations of tax evasion.

The OECD said 136 countries representing more than 90 percent of global GDP have agreed to the new tax system, which includes all G20 and EU states, and expects it to be implemented in 2023.

advertisement

Story continues below ad

Opinion: Will Pandora Papers take action at Tax Haven?

- Advertisement -

The group said it expects the system to result in the reallocation of about 100 of the world’s most profitable multinationals to the markets where those profits were generated for tax purposes. The new minimum 15-percent rate, the OECD said, will apply to companies with more than €750-million (US$868-million) in annual income, which it expects will provide countries with an additional US$150-billion in tax revenue for each Year.

“Today’s agreement will make our international tax system work better and better,” OECD Secretary-General Mathias Cormann said in a statement. “This is a major victory for effective and balanced multilateralism. It is a far-reaching agreement that ensures that our international tax system is digital and fit for purpose in a global economy.”

The decision comes after years of multilateral struggles to impose fair taxes on global industry giants in the digital age. Physical offices or operations are no longer a requirement for a company to do business in a country, which, thanks to older tax laws, allows it to generate profit in some jurisdictions without being taxed locally.

The short-term nature of operations for digital companies has allowed them to set up head offices where they can reduce tax bills. Countries such as Ireland entice trade with their low tax rate to form a significant portion of their economy. Companies or subsidiaries based in Ireland often handle for-profit, royalty-paying intellectual property.

According to the American Chamber of Commerce Ireland, more than 800 American companies operate in the country. The country agreed to accede to the agreement on Thursday after the OECD changed the language around the minimum tax rate from “at least” 15 percent to just 15 percent.

Although thousands of businesses that do not exceed the €750 million annual revenue threshold will not be subject to the new minimum 15-percent rate, the OECD said the scope of the new regime could be expanded seven years after the initial rules came into force. Is. .

Federal Finance Minister Chrystia Freeland announced in a fall economic statement nearly a year ago that Canada was ready to act unilaterally if protracted global talks failed to reach a conclusion. Ms Freeland had said Canada would impose a 3 percent digital-services tax, or DST, on revenue collected from Canadian users by large online companies by January 1, 2022, in the absence of a deal.

Story continues below ad

Ms Freeland’s office did not immediately react to Friday’s announcement, but the minister described the OECD’s interim agreement in July as a “tremendous achievement”.

Elliot Hughes, a tax policy adviser to former Liberal finance minister Bill Morneau and now a senior adviser to Summa Strategies, said he expected Freeland to drop plans for the new DST in light of Friday’s announcement.

“I think it would give him the cover he should be able to say, now that we’ve got this agreement internationally – 15 percent [minimum corporate tax rate] Digital services tax is no longer something that we will need to implement,” he said.

The federal government estimated that the proposed new digital-services tax would bring in $3.4 billion in revenue over five years, while a parliamentary budget official said it could bring in $4.23 billion.

In addition to implementing Canada’s new commitments to the G20 and the OECD, recently re-elected federal liberals will also need to fulfill a number of tax-specific campaign pledges.

Prime Minister Justin Trudeau promised to raise corporate taxes on all bank and insurance company income by more than $1 billion during the campaign. In addition, these same companies must pay a special fee called “Canada Recovery Dividend” over a four-year period. Liberal Platforms estimated that the two measures would raise more than $10 billion in new revenue over four years.

Story continues below ad

Liberals would also need to win the support of at least one other party in a minority parliament. The NDP platform called for a wide range of tax hikes for corporations and high-wealth individuals, while Block Québecois often called for larger technology companies such as Facebook and Google from Ottawa to ensure higher payments in taxes and contributions to domestic cultural productions. has urged.

Liberals may need to adjust their tax proposals to gain support from at least one other party in the House of Commons.

In an e-mailed statement, Facebook’s vice president of global affairs, Nick Clegg, said that “the tax system needs to garner public trust while providing certainty and stability to businesses. We are pleased to see an emerging international consensus.” Huh.” Google referred to a February 2021 blog post by its vice president of global affairs, Karan Bhatia, which stated that the company “has made long-supported efforts to update international tax rules to bring into a system that Where more tax rights are transferred to the countries where the products and services are consumed.” Apple did not immediately respond to a request for comment.


Your time is valuable. Get the Top Business Headlines newsletter delivered to your inbox easily morning or evening. .

- Advertisement -
Mail Us For  DMCA / Credit  Notice

Recent Articles

Stay on top - Get the daily news in your inbox

Related Stories