More than 130 countries have agreed a global pact aimed at preventing large multinationals from shifting their profits to tax havens.
The deal includes a global minimum corporate tax rate of 15 percent and rules forcing large companies with high profit margins to pay more in countries where they make money.
The OECD, which hosted the talks, said the minimum rate could raise $150bn (£110bn) worldwide. 136 countries that agreed to the deal, including Ireland, Hungary and Estonia, which have lower corporate tax rates, were protesting.
But there are several hurdles to face before the deal takes effect. The US is debating a related tax law proposed by Joe Biden that some in Congress might make US rates uncompetitive. A rejection by Congress would create uncertainty over the entire project.
Signatory countries agreed to a two-year ban on imposing new taxes on the tech giant, while the deal went to Congress. The US had threatened sanctions against countries including the UK and France over digital services taxes designed to raise more money from the tech giants.
The minimum corporate tax rate will come from 2023. The second part of the deal would allow countries to tax a portion of profits earned by large companies in their jurisdiction, even if they have a physical presence there.
This provision will affect around 100 global firms. The OECD said more than $125bn (£92bn) in benefits would be redistributed under the provision.
Nigeria, Pakistan, Sri Lanka and Kenya have not signed the agreement. Advocates of anti-poverty and tax fairness have said that developing countries would benefit less from the deal than wealthier countries.
The G24 group of developing countries said that without a substantial share of revenue from real gains, the deal would be “sub-optimal” and “not sustainable even in the short term”. But the OECD said developing countries stand to earn more revenue gains from reallocations than richer countries.
The deal is expected to be finalized by G20 finance ministers next week and again by G20 leaders at a summit in Rome in late October.
Negotiations on this deal have been going on for years. Countries have become more concerned about offshore tax avoidance over the past decade and the global consensus has been seen as the most effective way to tackle the practice.
Leaders and finance ministers have welcomed the deal. Mr Biden, who strongly supported the proposal, said: “For decades, American workers and taxpayers have paid the price for a tax system that has rewarded multinational corporations shipping jobs and profits overseas.
“This race to the bottom has not only harmed American workers, it has also put many of our allies at a competitive disadvantage.”
UK Chancellor Rishi Sunak said: “We now have a clear path to a fair tax system, where the big global players pay their fair share wherever they do business.”
European Commission President Ursula von der Leyen said countries are looking forward to the G20 summit at the end of the month to ensure that countries pay taxes more fairly for their citizens. Will finalize the details of the agreement.”
Tech giant Facebook also welcomes the deal. Nick Clegg, vice president of global affairs, said: “Facebook has long called for reform of global tax rules, and we believe this could mean more taxes and paying in different places.”
Credit: www.independent.co.uk /