A US tax plan for multinational corporations has received the support of 130 countries. This was announced by the Organization for Economic Co-operation and Development (OECD). A small group of the countries affiliated to that organization do not support the plan.
The American plan aims to ensure that companies that operate in multiple countries pay taxes in all those countries. The companies do not need to have an office in a country for this. The minimum profit tax for those companies worldwide will also be increased to 15 percent.
The annual profit is expected to be more than $100 billion. Raising the global minimum tax rate to 15 percent is expected to generate about $150 billion in additional tax revenues worldwide each year.
Nine OECD countries have not (yet) signed the deal, including Ireland, a well-known tax haven, according to local media. The Irish government opposes the 15 percent lower profit tax threshold and wants to maintain the 12.5 percent tax rate for large companies. With that rate, the Irish managed to lure many American tech companies such as Apple and Facebook. Finance Minister Paschal Donohoe said he supported most of the agreement. “I have expressed Ireland’s concerns, but I remain committed to an outcome that Ireland can support,” he said.
Other countries that did not support the United States’ plan include Barbados, Estonia, Hungary, Kenya, Nigeria, Peru, Saint Vincent and the Grenadines and Sri Lanka.
‘Most important deal in 100 years’
French Finance Minister Bruno Le Maire speaks of the ‘most important international tax deal in a hundred years’. He wants to intensify his contacts with the nine countries that do not support the deal in order to convince them.
His German colleague Olaf Scholz speaks of ‘colossal progress’ and ‘the biggest breakthrough in decades’. “The race to the bottom of ever-lower tax rates ends here,” Scholz said in response to the Washington meeting. “This changes everything.” According to the German, the countries with the higher tax revenues can invest in important other topics such as infrastructure, climate change and care.
British Chancellor of the Exchequer Rishi Sunak said he hoped the details of the deal would have been worked out by October. The deal – which was already pre-cooked at a G7 summit at the beginning of this month – must now be worked out further. The G20 countries will meet in Venice on 9 and 10 July, then the next step must be taken.
Tax evasion by mainly large tech companies such as Google and Facebook has been a thorn in the side of many countries for years. Large companies try to limit taxation as much as possible through complex tax constructions. This is because the tax legislation is still based on taxing companies with a physical establishment and a head office. Tech companies have customers worldwide, but are far from having a physical presence everywhere. The profit Facebook makes on a French user is taxed in the US, or perhaps Ireland. The countries want to put an end to that.
The countries are also trying to agree on a minimum rate of 15 percent worldwide profit tax. Large companies still frequently use tax structures, often via tax havens such as Bermuda or the Cayman Islands, in order to pay as little tax as possible.
The Netherlands and Ireland are also used remarkably often. Ireland, for example, only has a 12.5 percent corporate income tax. Although our own country has a higher profit tax (25 percent), it manages to lure companies with all kinds of tax benefits and confidential, tailor-made agreements with the tax authorities (tax rulings). A minimum rate prevents that ‘race to the bottom’ of increasingly lower tax rates.
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