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The agreement aims to address the way globalization and digitalization have changed the world economy.
Nearly 140 countries have agreed on a tentative agreement that will completely change the scale of taxation of large multinational companies to prevent them from hiding their profits in offshore safe havens, where they pay little or no taxes. taxi.
According to the agreement announced on Friday, countries will impose a 15% minimum global corporate tax on the largest internationally active company. As governments around the world seek to increase revenue after the COVID-19 pandemic, US President Joe Biden has been one of the driving forces behind the agreement.
US Treasury Secretary Janet Yellen said in a statement: “Today’s agreement represents a once-in-a-century achievement of economic diplomacy.”
The agreement was announced by the Paris-based Organization for Economic Cooperation and Development, which hosted the talks that led to the agreement.
The agreement aims to address the way globalization and digitalization have changed the world economy. In addition to the minimum tax rate, it also allows countries to tax part of the income of companies whose activities (such as online retail or online advertising) do not involve physical presence.
On Thursday, Ireland announced that it would join the agreement, abandoning the low tax policies that led companies such as Google and Facebook to locate their European operations there.
Although the Irish agreement is a step forward in the agreement, developing countries have raised objections, and Nigeria, Kenya, Pakistan and Sri Lanka have indicated that they will not sign it.
Anti-poverty and tax equity advocates say that most of the new income will go to richer countries, while less income will be provided to developing countries that rely more on corporate taxes. The Group of 24 states that if there is no greater share of the redistribution of profits, the transaction will be “sub-optimal” and “unsustainable even in the short term.”
Several hurdles must be cleared for this transaction. The leaders of the G20 will discuss the issue at a summit in Rome from October 30 to 31. Then, the part of the agreement that redistributes the right to tax corporate profits to the places where goods and services are consumed will require countries to sign a diplomatic agreement.
On the other hand, global minimum standards can simply be formulated by countries through coordinated unilateral actions. The recharge clause means that overseas tax avoidance must be paid domestically. As long as at least the main headquarters countries implement minimum taxes, this transaction will have most of the expected effects.
The U.S. approval of Biden’s related tax legislation will be key, especially since the U.S. is home to many of the largest multinational companies. The refusal of the US Congress will bring uncertainty to the entire project.
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