In a landmark deal, the Organization for Economic Cooperation and Development announced a new agreement on corporate tax rates, following years of disagreement, according to an initial report from CNBC.
The group of nations decided that a global minimum corporate tax rate of 15% would be enforced in 2023, signifying a colossal shift for less economically endowed nations like the Republic of Ireland, which have emphasized low corporate tax rates to attract major companies like Amazon.
Ending the 'race-to-the-bottom on corporate taxation'
"The landmark deal, agreed by 136 countries and jurisdictions representing more than 90% of global GDP, will also reallocate more than USD 125 billion of profits from around 100 of the world's largest and most profitable MNEs to countries worldwide, ensuring that these firms pay a fair share of tax wherever they operate and generate profits," said the OECD, in a Friday statement. This major deal came on the heels of some alterations made to the initial text. Most crucially a clause stating that the new rate of 15% wouldn't be increased at a later date, and that the new rates would not affect small businesses.
This last proviso was key in bringing Ireland, which has long opposed raising corporate taxes, into the deal. Hungary, which has also opposed a global tax minimum, also came around after it was assured that implementation would be slow and methodical. All countries now have to develop a means of implementing the new tax rate, with a deadline sometime in 2023. This is "a once-in-a-generation accomplishment for economic diplomacy," write Janet Yellen, Treasury Secretary, in the statement. They praised the multitude of countries that "decided to end the race to the bottom on corporate taxation," and emphasized an expectation that Congress will execute the reconciliation process to rapidly roll out this new deal into implementation within the United States, according to the CNBC report.
Corporations profited immensely during the COVID-19 crisis
"International tax policymaking is a complex issue, but the arcane language of today's agreement belies how simple and sweeping the stakes are: When this deal is enacted, Americans will find the global economy a much easier place to land a job, earn a living, or scale a business," read Yellen's statement. And the agreement does more than impose a minimum corporate tax rate: It also requires firms to pay taxes wherever they operate, instead of just where their headquarters are. But precisely how much corporations will owe countries throughout their global jurisdictions hasn't been finalized yet.
This decision came partly as a consequence of the COVID-19 coronavirus pandemic, which reinforced the idea of a great need to tax large corporations, who profited immensely during global lockdowns while millions lost their livelihoods. This decision is also in line with early-stage promises from the Joe Biden administration, which spoke of a desire to raise taxes on the rich. A 15% tax doesn't come close to an equal share of the riches major corporations gained during the largest economic and social tragedy yet this century, but it's better than nothing.
This was a breaking story and was regularly updated as new information became available.