AUS
NZ
UK
CA
USA
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GER
ESP
ITA
NLD
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IND
POL
BRA
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UAE
Summary
- The US’ proposal for a minimum level of global corporate tax has found the backing of 130 nations.
- A proposal for charging a 15% minimum corporate tax has been backed by these nations.
- The US has been trying to tighten the noose around corporates for the avoidance of corporate tax.
The US’ proposal for a minimum level of global corporate tax has found the backing of 130 nations who have decided that an overhaul of the global tax system was necessary to make corporate bigwigs to pay their fair share of tax in their regions of operation.
The Organisation for Economic Co-operation and Development (OECD) said that a proposal for charging a minimum 15 per cent corporate tax had been backed by those negotiating.
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Purpose of the tax
Through making a minimum corporate tax binding, the US has been trying to tighten the noose around corporates for the avoidance of corporate tax and this negotiation would be seen as a huge victory for President Joe Biden’s administration.
Janet Yellen, treasury secretary of the US, said that it was a historic chapter for economic diplomacy. The issue of tax has been a bone of contention between the US and other countries for some time now. The Paris-based OECD, which headed the discussions, estimated that tax revenues worth about £109 billion could be generated yearly through minimum corporate tax.
A statement signed by the 130 countries, out of the 139 jurisdictions and nations participating in the negotiations, said that an elaborate plan on how the proposal would be implemented as well as some of the remaining issues would be finalised by October this year.
The Wall Street Journal had reported on Thursday that an agreement was reached after a virtual meeting of the 130 jurisdictions and countries was completed. This included all the G20 member states as well.
OECD, however, said that two countries with low corporate taxes, Hungary and Ireland, had not agreed on a global minimum tax. G20 nations like France, the UK, China, and the US supported the proposal. About 90 per cent of the world’s gross domestic product comprises the economies of the 130 nations backing the proposal, an OECD statement said.
How would new rules impact?
The OECD also said the new rules of taxation would give jurisdictions and countries where profits were earned and not where these big companies are headquartered the right to tax profits over $100 billion. The agreement would be signed by all G20 finance ministers in Venice next week at a meeting.
The governments of the participating countries would now have to pass relevant laws that would make minimum taxation possible. However, whether certain industries would be exempted or not are subject to further negotiations.
China and India had initially opposed the proposal but later backed it. This move would be the biggest overhaul that the global tax system has seen in over a century. Companies could potentially curb tax avoidance by shifting their operations to nations with lower tax regimes.
