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Countries finally reach landmark global corporate tax deal

FINANCIAL STANDARD
By Reuters | October 12th 2021

The deal aims to prevent large firms from booking profits in low-tax countries. [Courtesy]

A milestone global deal to ensure big companies pay a minimum tax rate of 15 per cent and make it harder to avoid taxation has been agreed after Ireland, Estonia and Hungary signed up to an accord, which US President Joe Biden said levelled the playing field.

The deal aims to end a four-decade-long “race to the bottom” by governments that have sought to attract investment and jobs by taxing multinational companies only lightly and allowing them to shop around for low tax rates.

Negotiations have been going on for four years, moving online during the pandemic, with support for a deal from US President Joe Biden and the costs of the Covid-19 crisis giving it additional impetus in recent months.

“Establishing, for the first time in history, a strong global minimum tax will finally even the playing field for American workers and taxpayers, along with the rest of the world,” President Biden said in a statement.

The deal aims to prevent large firms from booking profits in low-tax countries like Ireland regardless of where their clients are, an issue that has become ever more pressing with the rise of “Big Tech” giants that can easily do business across borders.

Out of the 140 countries involved, 136 supported the deal, with Kenya, Nigeria, Pakistan and Sri Lanka abstaining for now. The Paris-based Organisation for Economic Cooperation and Development (OECD), which has been leading the talks, said that the deal would cover 90 per cent of the global economy.

“Today we have taken another important step towards more tax justice,” German Finance Minister Olaf Scholz said in a statement emailed to Reuters.

“We now have a clear path to a fairer tax system, where large global players pay their fair share wherever they do business,” his British counterpart Rishi Sunak said.

With the ink barely dry on the deal, some countries were already raising concerns about its implementation.

The Swiss finance ministry demanded in a statement that the interests of small economies be taken into account and said that the 2023 implementation date was impossible.

Poland, which has concerns over the impact on foreign investors, said it would keep working on the deal. Central to the agreement is a minimum corporate tax rate of 15 per cent and allowing governments to tax a greater share of foreign multinationals’ profits.

US Treasury Secretary Yellen hailed it as a victory for American families as well as international business.

“We’ve turned tireless negotiations into decades of increased prosperity – for both America and the world. Today’s agreement represents a once-in-a-generation accomplishment for economic diplomacy,” Yellen said in a statement. The OECD said that the minimum rate would see countries collect around $150 billion (Sh16.3 trillion) in new revenues annually.

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