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‘Historic day for economic diplomacy’: 130 nations back US proposal for 15% minimum corporate tax

Most sweeping tax reform in a century backed by all G-20 powers

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An era of free taxation for many of the world’s biggest multinational corporations may be coming to the end. In what is touted as the most sweeping change to international taxation in a century, the US proposal for a global minimum tax rate of at least 15 per cent on locally-headquartered companies has received backing from 130 countries representing over 90 per cent of global GDP.

A virtual meeting of officials from 130 countries including all the members of the G-20 and guided by the Organization for Economic Cooperation and Development (OECD) agreed to the broad outlines of the proposed tax overhaul. The next step will be for these countries to pass laws ensuring that companies headquartered there pay at least 15 per cent tax.

US Treasury Secretary Janet Yellen hailed the move calling today a “historic day for economic diplomacy”.

The OECD said the plans could generate about $150 billion in tax revenues a year. It estimates that $240 billion is lost annually due to tax avoidance by multinational companies.

The two-pillar package – the outcome of negotiations coordinated by the OECD for much of the last decade - aims to ensure that large Multinational Enterprises (MNEs) pay tax where they operate and earn profits, while adding much-needed certainty and stability to the international tax system.

“Pillar One will ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies. It would re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there,” OECD said in a release.

“Pillar Two seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases,” it added.

However, among the countries that did not agree to the deal were Ireland and Hungary, both of which have low corporate tax rates.

Participants in the negotiations have set an October 2021 deadline for finalising the remaining technical work on the two-pillar approach, as well as a plan for effective implementation in 2023.



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