Agreement between 130 out of 139 countries for a minimum global tax of 15% for large companies. The concluded agreement opens the possibility for a preliminary agreement to be signed at the G20 meeting in Venice next week (July 9-10).
After years of discussions, an agreement on multinational taxation was reached within the OECD framework on July 1st. 130 countries (representing more than 90% of world GDP) out of 139 have signed this agreement, which is set to initiate a reform of the international fiscal system to tax multinationals like the GAFAM (Google, Apple, Facebook, Amazon, and Microsoft), which have so far succeeded in crafting highly effective strategies to avoid taxes.
The text that is supposed to implement this reform is fully ready, based on these two pillars: a global minimum tax of at least 15% that will, in effect, neutralize tax havens with zero rates (like the Cayman Islands, British Virgin Islands, Jersey, etc.); and the redistribution of a portion of multinational companies’ excess profits to the countries where they conduct business without being physically established, including many developing countries.
The financial leaders positively commented on the agreement: US Treasury Secretary Janet Yellen remarked, “For decades, the United States has been engaged in a losing international competition by lowering corporate taxes, only to see other countries respond by doing the same. The result has been a global race to the bottom,” she commented.
For German Finance Minister Scholz, it’s a “colossal step towards fairer taxation.” According to him, the agreement “will allow us to experience effective and massive change in the years and decades to come.”
Finally, from the French side, Economy and Finance Minister Bruno Le Maire hailed “the most important international tax agreement concluded in a century.”
According to the non-profit Tax Foundation’s observatory, since 1980, the average global corporate tax rate, weighted by the size of each economy, has dropped from over 46% to 26%. While this seems like good news for businesses and investors, it has caused harm to governments struggling with reduced budgets to fund programs, services, and reforms. If approved, the minimum tax would represent the most significant change in global tax rules in the last 100 years.
There is no doubt that for the American administration, the agreement represents a victory, also against internal public opinion: President Biden described it as an example of the “foreign policy for the middle class” he had promised to implement. “This agreement will level the playing field and make America more competitive,” he explained. Moreover, for the first time, the agreement announced yesterday also includes provisions aimed at taxing web giants such as Google, Facebook, and certain departments of Amazon, like Amazon Web Services.
In return, the European countries that have instituted digital taxes have committed to removing them, although the OECD statement does not set an action timeline. Treasury Secretary Janet Yellen hailed the agreement as “a historic moment” for economic diplomacy. “For decades, the United States has participated in counterproductive tax competition, lowering corporate taxes only to see other countries cut theirs in response. The result was a global race to the bottom,” Yellen wrote on Twitter. “Today, the agreement of 130 countries representing over 90% of world GDP is a clear signal: the race to the bottom is about to end.” The agreement includes “heavyweights” such as China, Russia, Turkey, and India.
Despite the agreement, we will still have to wait for the global minimum tax to become a reality. The countries joining the project will need to agree on many details, aligning different tax systems that differ on significant points. For example, not everyone will be required to adopt the same 15% rate. But if a country maintained a lower rate, the United States could impose a compensatory levy on companies based there, still achieving the goal.
