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The world’s largest companies like Facebook and Johnson & Johnson face extra combined tax charges of hundreds of billions of dollars after 136 countries on Friday signed a detailed plan to carefully review international tax policies.
The US, UK, China, India and all EU countries have signed off on the international agreement, negotiated under the supervision of the Organization for Economic Cooperation and Development. Kenya, Nigeria, Pakistan and Sri Lanka are the number of 140 countries involved in the negotiations that have decided against signing in.
The deal aims to ensure that the 100 largest companies in the world pay tax on their operations and sales worldwide, while introducing an effective international minimum corporate tax rate of 15 percent. The global tax rate will allow countries, collectively, to pocket an additional $ 150 billion in annual tax revenue, while the levy will separate a separate $ 125 billion in corporate tax receipts in between of participating governments around the world.
The global deal, which is still due to be approved by G20 leaders later this month and is likely to take at least two years to implement, represents the first wholesale change of the corporate tax regime in decades. It comes amid ongoing tension between the US and Europe about how these measures should be applied to companies operating in their jurisdiction. Officials around the world are looking for new sources of revenue to pay for the economic recovery associated with the COVID-19 crisis.
“This will make our international tax system fairer and work better,” OECD general secretary Mathias Cormann, tweeted after sealing the deal. “This is a major achievement for effective and balanced multilateralism. It is a comprehensive agreement that ensures that our international tax system is fit for purpose in a digitalized and globalized world economy.”
The two so -called pillars of the deal are designed to make it harder for digital giants and multinational companies to shift their revenue around the world and evade countries ’tax authorities through smart – and legal – accounting. .
The minimum tax rate, the so -called Pillar Two, should also stop companies seeking to park their profits in tax havens – an ongoing problem, most recently made public in Pandora Papers. The so -called Pillar One will distribute corporate tax revenues, beyond a certain threshold, to countries wherever they sell goods and services.
Years of negotiations came to an international agreement following national efforts, mostly in the EU, to lease US tech companies such as Amazon and Facebook. Those domestic levies threaten a global trade war – particularly between the EU and the US The agreement aims to end those tensions and make it harder for companies to shift their profits to sidesteps. existing tax regime.
Critics claim the overhaul does not benefit Western countries, while potentially hampering the government’s ability to set their own tax rates to attract international investment to their shores.
“The expected agreement will see rich OECD countries taking in a large share of new revenues, and will also severely limit the freedom of others to set their tax policies and defend their tax bases,” he said. said Alex Cobham, chief executive of the Tax Justice Network. “It’s probably always naive to expect a club of rich countries to deal with tax abuse, if club members and their dependencies are the leading producers of that abuse.”
Finance ministers from G20 countries are scheduled to approve the agreement when they meet in Washington next week. The heads of the countries are expected to endorse the agreement by the end of the month, starting the difficult task of implementing the policies by the end of 2023.
Many of the signatories were committed to the overhaul in July, when the OECD first released the broad lines of the agreement. But there have been some holdouts, notably Ireland, which grew in reference to the July statement setting a minimum tax rate of “at least” 15 per cent. Those two words are gone.
The deal announced on Friday is more detailed than its predecessor and adapted for countries, particularly the EU, to ride. The new fine print is crucial to Ireland’s victory after Dublin recailed in hopes of giving up its decade-long corporate tax rate of 12.5 per cent. That will not be the case, as the OECD international rate will only target companies with annual revenues of at least € 750 million. This allows the Irish to maintain their existing tax regime, while applying a so-called surcharge of 2.5 percentage points to the largest global companies headquartered in the Emerald Isle.
Changes to establish a global minimum corporate tax rate are likely to be approved by countries around the world next year.
Under a complex formula for Pillar One – where 25 percent of revenue for companies with at least a 10 percent profit margin and annual revenues of at least $ 20 billion will be divided globally – governments get additional tax revenue from the largest companies in the world, based on how large they operate within each jurisdiction. Those changes are expected to take effect in 2023.
The deal on Friday also includes tax cuts for some corporate assets and a promise to withdraw the national tax against tech giants in the coming years. However, the European Commission is free to suggest a separate EU digital levy, as long as it applies to many companies at very low rates. Washington has successfully lobbied Brussels to postpone the plans until a final agreement with the OECD is reached.
As part of the final agreement, companies will be able to access tax breaks, under minimum corporate tax rate measures, that allow these firms to deduct some of the amount they hold on the physical assets and on payroll in the countries in which they have operations. These reductions will decrease from 8 percent and 10 percent, respectively, to 5 percent over 10 years.
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