After years of negotiations, G20 leaders on Saturday approved a landmark deal to end tax havens, though some developing countries are complaining that it still falls short of expectations.
Some 136 countries representing more than 90% of global GDP have signed the agreement negotiated by the OECD to tax multinational corporations more equitably and enact a minimum global corporate tax of 15%.
US Treasury Secretary Janet Yellen praised the “historic” green light from leaders of major world economies, which was also confirmed by sources close to the G20 summit in Rome ahead of a final statement expected on Sunday.
The tax reform, first proposed in 2017 and boosted by the support of US President Joe Biden, is expected to come into force in 2023.
But that date will almost certainly slip, as each country must translate the global agreement into its national legislation – Biden facing one of the toughest national oppositions.
“It is very likely that the implementation of the agreement will be delayed,” Giuliano Noci, professor of strategy at Milan Polytechnic, told AFP.
“The devil is in the details – all aspects of its implementation must be resolved and it must be approved by national parliaments.”
The first pillar of the reform, which is to tax companies where they make their profits, and not just where they are headquartered, has met with stiff opposition in the US Congress.
It primarily targets internet giants like Google’s parent Alphabet, Amazon, Facebook and Apple, experts in establishing themselves in low-tax countries – which allows them to pay derisory taxes compared to their huge profits.
“If the United States were to withdraw from the deal, it would be doomed to failure,” Noci added.
Noci, however, expects Congress to give the green light, saying “the attitude towards digital giants has changed dramatically in recent years.”
US $ 150 billion
The OECD says a 15% global minimum corporate tax rate could add $ 150 billion a year to global tax revenues.
A hundred multinationals with an annual turnover of more than 20 billion euros will see part of their taxes redistributed to the countries where they actually operate.
But that, and the minimum tax rate of 15 percent, has been criticized as insufficient by many developing countries.
Notably because the average global tax rate is currently above 22%, itself well below the average of 50% in 1985.
Argentina is pushing for a tax rate of 21%, or even 25%, because “tax evasion by multinationals is one of the most toxic aspects of globalization”, according to Economy Minister Martín Guzmán .
Argentina eventually joined the deal, but Kenya, Nigeria, Sri Lanka and Pakistan still stand.
“The deal was negotiated with developing countries and reflects a lot of what they wanted, but it is true that it is a compromise”, Pascal Saint-Amans, the head of tax policy at the ‘OECD and one of the architects of reform, told AFP.
In the final version of the reform, small countries will benefit from part of the redistributed tax from companies with an annual turnover of 250,000 euros per year. For rich countries, the threshold is one million euros.
Benefit rich countries
However, the Independent Commission for the Reform of International Business Taxation (ICRICT), which includes renowned economists such as Joseph Stiglitz and Thomas Piketty, has been scathing.
In an open letter to G20 leaders earlier this month, they said the reforms had “been watered down in such a way that they would massively benefit rich countries.”
Negotiators “made concessions to sign three tax havens like Ireland, Estonia and Hungary, but they did not listen to developing countries,” the commission’s chief executive told AFP , Tommaso Faccio.
Ireland waived its very low corporate tax rate of 12.5% in exchange for assurances that the future global minimum would remain stuck at 15%.
Previously, we used to talk about a rate of “at least 15 per cent”.
The last-minute signings of these three low-tax European states allowed the OECD to approve the reform just in time for the G20 summit in Rome.
Their support is crucial, because France wants to take advantage of its rotating presidency of the European Union from January to have the minimum tax rate adopted by a European directive, which will require unanimity.
by Brigitte Hagemann, AFP
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