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Global Tax Accord Seeks to End Havens

On Friday, a group of 136 countries set a minimum global tax rate of 15% for big companies

The Four-Decade Decay in Corporate Tax Rates

On Friday, a group of one hundred and thirty-six countries set a minimum tax rate globally of fifteen percent for giant companies and sought to make it difficult for them to avoid taxation in an innovative accord that United States President Joe Biden said leveled the playing field. Moreover, the agreement intends to end a four-decade-long competitive situation by setting a floor for nations that sought to attract jobs and investments by taxing global firms lightly, effectively permitting them to shop around for low tax rates.

The fifteen percent floor agreed to is well below a corporate tax rate which averages about 23.5 percent in industrialized nations. Moreover, some developing nations that sought a higher tax rate said their interests were suspended to accommodate wealthy countries, whereas NGOs criticized the several exemptions of the agreement, with Oxfam saying it effectively had no teeth. The deal also vows to be a tough sell in Washington, where a group of Republican United States senators sent a letter to Janet Yellen, the Treasury Secretary, saying they had severe concerns.

For the last four years, negotiations have been going on, with the accord finally agreed when Hungary, Estonia, and Ireland stopped to oppose the deal and signed up. Additionally, the agreement aims to stop big companies from booking profits in low-tax nations like Ireland regardless of where their clients are, a matter that now emerges more pressing with the growth of giant tech companies that can easily do business across the world.

Which countries didn’t vote in favor of the deal?

Joe Biden, the U.S. President, stated that launching, for the first time in history, a strong minimum tax globally will finally even the playing field for U.S. taxpayers and workers, as well as the rest of the world. Out of one hundred and forty nations, one hundred and thirty-six backed the deal. On the other hand, Pakistan, Kenya, Sri Lanka, and Nigeria missed it for now.

In a tweet, Biden said that he is keeping his presidential campaign’s commitment. In addition, his administration is not going to raise taxes a single penny on anybody making under four hundred thousand dollars annually. But finally, what his government is going to do is have the biggest companies and wealthiest Americans ultimately pay their fair share.

OECD, the Paris-based Organization for Economic Cooperation & Development, was leading the discussions. It said that the agreement would cover ninety percent of the worldwide economy. Olaf Scholz, the Finance Minister of Germany, shared a statement with Reuters via email, which said that they took another noteworthy step towards more tax justice.

Likewise, Chancellor of the Exchequer, Rishi Sunak, said that now they have a strong and clear route to a fairer tax system, where big international players pay their fair share wherever they do business.

Some Countries Raised Concerns about the Implementation of the Deal

Previously, before the deal sign, some countries were already raising concerns about the implementation of the agreement. For example, the Finance Ministry of Switzerland demanded that small economic nations’ interests be taken into account and said that the implementation date of the deal in 2023 was impossible.

In the same way, U.S. Republican senators raised their concerns that the Biden government was considering avoiding the need to obtain the authority of the Senate to implement accords. Under the American Constitution, the Senate must approve any agreement with a two-thirds majority or sixty-seven votes. In recent years, Republican leaders were overwhelmingly aggressive to treaties and supported a decrease in corporate taxes.

What was the reaction of big tech companies to the tax deal?

Facebook Inc Vice President of Global Affairs, Nick Clegg, said they were delighted to see an emerging global consensus on taxes. Further, he added that Facebook long called for the transformation of the international tax rules, and the company recognizes this could mean paying more tax from giants and in different places.

A spokesman of Amazon said that the firm supports the development of a consensus-based solution for global tax coordination, and the company looks forward to their continued tech work. Analyst at Morgan Stanley stated that tech hardware, health care, and some media services appeared as the most exposed to a fifteen percent minimum tax rate.

The key point of the tax deal is a minimum tax rate of fifteen percent and allowing governments across the world to tax a bigger share of foreign multination companies’ profits. Yellen welcomed it as a victory for U.S. nationals along with the international business. Furthermore, the OECD said that the minimum rate would see nations collect across $150 billion in new revenues yearly while taxing rights on over $125 billion of profit would now shift to nations where giant multinationals earn their income.

The Four-Decade Decay in Corporate Tax Rates

Global Tax Deal will Set Fifteen Percent Minimum Rate
Note: Statistics is for legislative, corporate tax rates at the federal or central government level and excluding surtax
Source: OECD

Several developing nations said that the OECD ignored their interests in the agreement, and those wealthy countries could continue dividing up the spoils of foreign direct investment. On Thursday, Martin Guzman, the Economy Minister of Argentine, said that the proposals force developing nations to choose something terrible or something worse. Oxfam, one of the campaign groups, said that the tax deal wouldn’t end tax-havens.

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