136 countries have agreed on a major reform of the international tax system. This was reported by the Organization for Economic Co-operation and Development (OECD), which led the negotiations. Among other things, the countries have agreed that multinational companies must pay at least 15 percent in tax from 2023, regardless of which country they are in.
The reform must put an end to tax evasion. Of the 140 countries negotiating a reform, 130 were already behind tax plans by the middle of this year. Among others, Ireland, Estonia and Hungary were still against it, but these countries have now given up. Only Kenya, Nigeria, Pakistan and Sri Lanka do not agree, reports the OECD.
It is now still easy for large internationally operating companies to pay a little tax by locating their headquarters in tax-favorable countries. But the new agreements should change that. Part of the profits of multinational companies are not taxed in the home country, but in the countries where the company has actually made that profit. In addition, the profit tax for multinational companies will not be lower than 15 per cent.
The minimum income tax rate should give governments $ 150 billion in new tax revenue each year. In addition, the OECD estimates that of the profits of the 100 largest multinationals, about $ 125 billion can be taxed by countries other than before.
Ireland, which currently has a tax rate of 12.5, has withdrawn its opposition to the deal after promises that the global minimum rate will not rise further. The country where Facebook and Apple, for example, have their European headquarters is often seen as a tax haven within the EU, just like the Netherlands.
Fairer and better
“Today’s agreement makes our international tax systems fairer and better,” said OECD Secretary-General Mathias Cormann. At the same time, the organization swears that it is not the intention to completely eliminate tax competition between the countries. It also received criticism this week from emerging economies, which consider the minimum rate too low.
“Today’s agreement is a unique achievement for economic diplomacy, achieved only once in a generation,” US Treasury Secretary Janet Yellen said in a statement. President Joe Biden has been one of the driving forces behind the deal. It comes as governments around the world strive to increase revenue after the coronavirus pandemic.
State Secretary Hans Vijlbrief (Skat) speaks of an ‘important step’ towards the introduction of a worldwide minimum rate. ‘We will use this to further tackle tax evasion. I am glad that countries that have hesitated to the last, such as Ireland, Estonia and Hungary, still support the agreement. And hopefully other countries will follow later, “he wrote on Twitter.
Out of shots
The international aid organization Oxfam has nothing good to say. The agreed minimum profit tax rate of 15 percent could be used by some rich countries to lower taxes, the organization warns. In addition, Oxfam condemns a ‘complex network of exceptions’ that would largely keep technology companies like Amazon out of harm from the tax authorities.
“Today’s deal is an embarrassing and dangerous capitulation to low taxes in countries like Ireland. It’s a hoax robbing developing countries of the pandemic of much-needed revenue for hospitals, teachers and better jobs,” said Susana Ruiz, head of Oxfams research into fairer taxes.
The finance ministers of the Group of 20 (G20), made up of the 19 largest economies and the EU, will adopt the agreement next week. The agreement will then be presented to G20 leaders for final approval at a summit in Rome at the end of October.
The countries involved in the agreement must sign a diplomatic agreement to introduce the tax for companies that are not physically present in a country but that make money there, for example through digital services.
The second part of the agreement, the global minimum rate of at least 15 percent, would be set by the countries individually according to model rules developed by the OECD. A further provision stipulates that tax evaded abroad must be paid in the home country. If the countries of the headquarters introduce the minimum tax, the agreement will have the greatest effect.
Tax evasion from mainly big technology companies like 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 structures. This is because the tax legislation is still based on taxing companies with physical establishment and head office. Tech companies have customers all over the world, but have far from a physical presence anywhere. The profits Facebook gets on a French user are taxed in the United States or perhaps Ireland. The countries want to put an end to this.
Large companies still often use tax structures, often through tax havens like Bermuda or the Cayman Islands, to pay as little tax as possible. The Netherlands and Ireland are also used remarkably often. Ireland, for example, has only 12.5 per cent corporation tax. Although our own country has a higher profit tax (25 percent), it manages to entice companies with all kinds of tax benefits and confidential, tailor-made agreements with the tax authorities (tax rulings). A minimum rate prevents the “race to the bottom” with ever lower tax rates.
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