US Secretary Of State Antony Blinken (frontL), talks past OECD Director for Council and Executive Committee Secretariat(SGE/CES), Silvia Da Rin Pagnetto, (frontR), during a closing session at Organisation for Economic Cooperation and Development’s Ministerial Council Meeting. It was held in Paris, October 6th 2021.
Patrick Semansky | AFP | Getty Images
Friday’s announcement by the Organisation for Economic Cooperation and Development, following years of dispute over corporate tax rates was a huge breakthrough.
Group of industrialized nations agreed on a global minimum corporate tax rate of 15%. This marks a huge shift for smaller economies, such as the Republic of Ireland, which have attracted international firms — to a large extent — via a lower tax rate.
In a Friday statement, the OECD stated that “The historic deal was agreed by 136 nations and jurisdictions representing more then 90% of global GDP.”
This breakthrough came after some minor changes to the original text. These included the fact that 15% of the rates will not rise in the future and that no small business will be subject to these new rates.
This worked. Ireland — a long-time opponent of raising corporate tax rates — to get on board with the plan.
Hungary, which was a long-time skeptic of a global tax arrangement, has also decided to change its mind, after being assured there would be a prolonged implementation period.
The new agreement will be effective in 2023, but countries must now work out the details.
The deal marks a shift in tax policy because it not only imposes a minimum corporate tax rate, but it also forces companies to pay taxes where they operate — not just where they have their headquarters.
It is still not clear what the exact formula will be to calculate how much companies across jurisdictions.
International leaders made the announcement partly due to this. coronavirusPandemics have reaffirmed the need for fair taxation as governments scramble for funding.
After being elected to the presidency in 2020, Joe Biden declared that he was going to increase the tax burden on the richest Americans in an effort to end inequality.