France has joined 129 countries in backing a global minimum tax as part of a worldwide effort to keep multinational firms from dodging taxes by shifting their profits to countries with low rates.
The agreement announced by the Organisation for Economic Cooperation and Development (OECD) Thursday also provides for taxing the largest global companies in countries where they earn profits through online businesses but may have no physical presence.
The agreement followed a proposal from US President Joe Biden for at least a 15 percent rate, an initiative that propelled the talks toward meeting a deadline for a deal by the middle of this year.
[NEWS] 130 countries and jurisdictions join bold new framework for international tax reform.
— OECD Tax (@OECDtax) July 1, 2021
🗞️ Read more ➡️ https://t.co/zUB74idz4z#BEPS #OECD #G20Italy #tax pic.twitter.com/Vt5QXr1zJr
Under the deal, countries could tax their companies' foreign earnings if they go untaxed through subsidiaries in other countries. That would remove the incentive to use accounting and legal schemes to shift profits to low-rate countries since the profits would be taxed at home anyway.
But not all of the 139 countries that joined the talks signed on to the deal, Ireland one of them.
Under the deal, countries could tax their companies' foreign earnings if they go untaxed through subsidiaries in other countries. That would remove the incentive to use accounting and legal schemes to shift profits to low-rate countries since the profits would be taxed at home anyway.
But not all of the 139 countries that joined the talks signed on to the deal, Ireland being one of them. Irish authorities had previously estimated that the agreement would cost Ireland more than €2 billion in annual tax revenue.
Ireland is one of nine countries that did not sign an agreement at the OECD on Thursday to reform the global corporate tax regime https://t.co/xWezQ9Rprj
— The Irish Times (@IrishTimes) July 1, 2021
According to an OECD press release, the tax plan consists of a "two-pillar package" aimed at ensuring "that large Multinational Enterprises pay tax where they operate and earn profits".
Addressing concerns that tax income would only go to richer countries where the headquarters of multinationals are based, fairer distribution of profits "will be ensured", while a global minimum tax rate will be introduced to "that countries can use to protect their tax bases".
The OECD estimates that the plan will provide for "around USD 150 billion in additional global tax revenues annually".
From G7 to G20
The G7 group of industrialised nations in June already endorsed the scheme, with French Finance Minister Bruno Le Maire calling it a "historic step" in the fight against fiscal evasion.
US Treasury Secretary Janet Yellen hailed the "unprecedented commitment", saying in a statement that a global minimum tax "would end the race to the bottom in corporate taxation".
The deal now will be discussed by the Group of 20 countries at meetings later this year in hopes of finishing the details in October and implementing the agreement in 2023.
