136 countries agree on a global minimum tax rate of 15%
The Organization for Economic Co-operation and Development on Friday announced a landmark agreement to overhaul international tax rules, with more than 130 nations agreeing to a 15% global minimum corporate tax rate and other policies aimed at cracking down on tax avoidance. Is.
The negotiations over the years were fueled by support from President Biden and Treasury Secretary Janet Yellen, as well as the unprecedented costs of the COVID-19 pandemic.
“Today’s agreement will make our international tax system work better and better,” OECD Secretary-General Mathias Cormann said in a statement. “We must now act swiftly and diligently to ensure the effective implementation of this major reform.”
Biden’s proposed 39.6% tax hike will affect these individuals, families
The deal is designed to target corporations that want to reduce their tax liability, often by relocating profits and revenues to low-tax countries such as Bermuda, the Cayman Islands or Ireland, where the sale was made. Various methods are used to reduce it. Billions of US dollars are spent every year as practiced by US and foreign multinationals Treasury Department.
The OECD estimates that the agreement, signed by 136 countries and jurisdictions, will reallocate approximately $100 to 125 billion of the profits of some of the world’s largest and most profitable multinational corporations to countries around the world. , thus “ensuring that these firms pay their fair share of tax wherever they operate and make profits.”
G-7 leaders juggle a minimum global tax for multinationals
The breakthrough came a day after Ireland, a beneficiary of lower corporate tax rates, agreed to drop its opposition to the deal after some changes were made to the original text, including not raising the 15% rate at a later date. The minimum rate also excludes companies with an annual turnover of less than EUR 750 million, or approximately $866 million.
Hungary and Estonia, two other European holdouts, also agreed to support the agreement, which will not be active until 2023 to ensure countries have enough time to change tax laws.
In the US, updating the tax law would require legislative approval by Congress – a feat that still faces an uphill climb to pass. The House and Senate would need to pass a bill to increase the minimum tax on foreign profits of companies to 15% from the current 10.5% rate. Democrats plan to include the increase as part of their mega party-line tax and spending bill, which will be passed using a procedural tool known as reconciliation, allowing the party to vote for Senate Republicans. Bypassing the 60-vote filebuster.
Get Granthshala Business on the go by clicking here
Biden praised the agreement on Friday, celebrating it as “proof that the rest of the world agrees that corporations can do more to make sure we build better.” He promised that the $3.5 trillion bill – the bulk of his “Build Back Better” economic agenda – would build on the OECD deal.
“For decades, American workers and taxpayers have paid the price for a tax system that has rewarded multinational corporations for shipping jobs and profits,” Biden said in a statement. “This race to the bottom has not only harmed American workers, it has also put many of our allies at a competitive disadvantage.”