Reaching a global deal to curb tax avoidance

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Almost 140 countries agreed on the largest on Friday Review of global tax law A move aimed at reducing tax avoidance by multinational corporations and raising additional tax revenues of $ 150 billion annually during the first century.

However, this agreement is a decade of creation and is now Must be implemented by the signerRoads that are likely to be far from smooth, including the closely divided US Congress.

The reform sets a global minimum corporate tax of 15% to prevent businesses from misusing low tax jurisdictions.

Treasury Secretary Janet Yellen said the floor set by the World Minimum Tax is a victory for the United States and the ability to raise money from businesses. She urged Congress to act swiftly to enact the international tax proposals that have been discussed. This will help pay for expanded child tax credits and expanded climate change initiatives, among other policies.

US Treasury Secretary Janet Yellen has made it a priority to ensure the lowest tax rates in the world.


Photo:

Luca Bruno / Associated Press

“Developing international tax policy is a complex issue, but the esoteric language of today’s agreement is that we believe in how simple and widespread stakes are. When this agreement is reached, Americans It will be a much easier place for the world economy to get a job and make a living, or expand its business, “Yelen said.

The 136-country agreement also aims to address the challenges posed by companies that register profitable intellectual property anywhere in the world, especially technology giants.As a result, many of those countries have established businesses in Low tax countries such as Ireland To reduce their tax invoices.

The final agreement was supported by three European Union member states, Ireland, Estonia and Hungary, which withheld support for the preliminary agreement in July. However, Nigeria, Kenya, Sri Lanka and Pakistan continued to refuse to trade.

When a new agreement is implemented, it will split existing tax revenues in a way that favors the country in which the customer is based. The largest countries and low tax jurisdictions must implement agreements to significantly reduce tax avoidance.

Overall, the OECD estimates that the new regulations could bring additional revenue of $ 150 billion annually to governments around the world.

The final deal is expected to receive leadership support from a group of 20 major economies at a meeting in Rome later this month. The signatories will then need to change national law and amend international treaties in order to carry out the overhaul.

The signatories have set 2023 as the implementation goal. This is an ambitious goal for tax experts. And while the deal is likely to survive if a small economy fails to pass the new legislation, it will be significantly weakened if a large economy such as the United States fails.

“We all rely on the ability of all the great powers to move together at about the same pace,” said Irish Treasury Minister Paschal Donohoe. “If there was a big economy that was important to other countries and was not in a position to implement the agreement, but that may not be clear for some time.”

Parliamentary work on transactions is divided into two phases. The first is to change the minimum tax on foreign income for US companies approved by the United States in 2017 this year. To comply with the agreement, the Democratic Party will raise the tax rate. For each country. Democrats can do this on their own and are trying to do so as part of President Biden’s broader policy agenda.

The second phase is more tricky and the timing is less certain. That is where the United States must agree to an international agreement that changes the rules of where income is taxed. Many analysts say it will require a two-thirds vote in the Senate and therefore a treaty that requires some support from the Republicans. Yellen is more cautious about the details of the second phase schedule and procedures.

Friction between European countries and the United States over taxation of US tech giants can lead to a trade war.

In a lengthy discussion of the new international tax law, European officials argued that tech giants in the United States should pay more taxes in Europe, and that it is produced from the country in which the product is produced. It has fought for a system to redistribute the tax rights of some digital products to the countries that are being consumed.

But the United States resisted. Many European governments have introduced their own taxes on digital services. The United States then threatened to impose new tariffs on imports from Europe.

The compromise was to redistribute tax rights to all large corporations that exceed a certain profit threshold.

Under the agreement reached on Friday, the government promised not to introduce new taxes and said it would eventually withdraw what was in place. However, the schedule for doing so has not yet been settled through bilateral talks between the United States and the countries that have introduced new taxes.

Technology companies have long supported efforts to secure international agreements, although more taxes may have to be paid after the overhaul.

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Do you agree with the global minimum tax on businesses? Why or why not? Join the conversation below.

The Organization for Economic Co-operation and Development, which has led tax consultations, estimates that approximately $ 125 billion of existing tax revenues will be distributed between countries in new ways.

These new rules apply to companies with global sales of more than € 20 billion and a profit margin of more than 10%. The group may include about 100 companies. The government has agreed to redistribute tax rights to more than 10% of the profits of each of these companies.

The agreement announced on Friday states that revenue and profitability thresholds for redistributing tax rights may also apply to some large corporations if the segment is reported in financial accounting. Specifies that there is.Such provisions apply to

Amazon.com Of a corporation

Cloud division, Amazon Web Services. However, Amazon as a whole is not profitable enough to qualify for its low-margin e-commerce business.

The rest of the contract sets a tax rate of at least 15% on the profits of large corporations. SMEs with revenues of less than $ 750 million are exempt because they usually do not operate internationally and therefore do not have access to the loopholes that large multinationals have benefited from.

In low tax countries such as Ireland, overall income is reduced. Developing countries are pushing for both higher minimum tax rates and the reallocation of a larger share of the profits of large corporations, and are most unsatisfied with the final transaction.

Correction and amplification
Nigeria, Kenya, Sri Lanka and Pakistan continued to reject global tax agreements. Earlier versions of this article mistakenly stated that St. Vincent refused to trade. (Corrected on October 8)

Write to Paul Hanon paul.hannon@wsj.com And Richard Rubin richard.rubin@wsj.com

Copyright © 2021 DowJones & Company, Inc. all rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Reaching a global deal to curb tax avoidance

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