The secretary general of the Organisation for Economic Co-operation and Development (OECD) said in Davos on Tuesday that it will be in the self-interest of countries to implement a global corporation tax deal agreed last year, even as it encounters stumbling blocks in Europe and the US.
However, Mathias Cormann acknowledged that the original timeline for implementation of an agreement in principle between almost 140 countries to set a minimum 15 per cent tax rate on multinationals with turnover of more than €750 million is likely to drift out by a year to 2024, as states seek to pass necessary enacting laws.
Efforts by the European Commission to push through planned legislation on the matter have been blocked since last month by the Polish government. A planned debate by EU finance ministers on the matter on Tuesday as part of a meeting in Brussels was reportedly dropped on the eve of the gathering, given Warsaw’s ongoing veto.
Meanwhile, US treasury secretary Janet Yellen is also facing trouble getting support in Congress for the plan ahead of mid-term elections in November, when there is the prospect of Republicans, many of whom oppose the deal, taking control of one or both legislative chambers.
The OECD secretary general told a panel on taxation at the World Economic Forum (WEF) in Davos that he remains optimistic that the global accord will be implemented broadly. He said that he is “quite hopeful” that Poland will ultimately back the EU plan to legislate for the minimum tax rate and that politicians in the US will ultimately act out of “rational self-interest” to be part of the deal.
The minimum rate accord is known as pillar two of the OECD’s efforts to overhaul global corporate tax laws. Mr Cormann said that technical work is continuing on the so-called pillar one plan to reach a unified approach on taxation of the digital economy.
“If the US is not part of pillar one, major US companies will be on the receiving end of a proliferation of different unilateral tax measures creating increased complexity, inefficiency and trade tensions,” Mr Cormann said.
On pillar two, he said that as other countries implement that 15 per cent tax agreement, those that don’t are “leaving money on the table” for others to collect.
Stefania Stantcheva, a professor of economics at Harvard University, said during the debate that if the EU gets its planned laws over the line, it will force others to follow.
Meanwhile, Mr Cormann disagreed with a fresh call from Oxfam executive director Gabriela Bucher, who was also on the panel, for permanent wealth taxes to be introduced by countries globally as a way of redistributing wealth at a time of rising living costs and poverty rates, and a mounting food crisis in parts of the world.
Oxfam estimates that a slapping a 2 per cent wealth tax on millionaires and 5 per cent levy on billionaires would generate $2.52 trillion (€2.35 trillion) a year. This would be enough to lift 2.3 billion people out of poverty, make enough vaccines for the world and deliver universal healthcare and social protection for everyone living in low- and lower middle-income countries, it said in a report released at the WEF this week.
“As far as wealth taxes are concerned, we haven’t seen a huge history of success or efficiency,” Mr Cormann said, even if the notion can be attractive politically. “It’s inevitably difficult to administer and doesn’t necessarily raise that much money.”
Still, he said that temporary windfall taxes levied against industries, like the energy sector, that are making elevated profits at a time of heightened inflation “could be a neat way” of redistributing money to parts of society that are under pressure.