A global deal to ensure big companies pay a minimum tax rate of 15 per cent and make it harder for them to avoid taxation has been agreed by 136 nations, the Organisation for Economic Co-operation and Development (OECD) said on Friday.
The Republic had announced on Thursday that it would sign up to the deal, meaning the end of the 12.5 per cent tax rate for big companies. The draft agreement confirms that the proposed minimum global rate will be 15 per cent. In the second part of the deal, which changes where companies pay some taxes, the agreement contains no major surprises. Based on earlier drafts, the Department of Finance estimated it could cost Ireland up to €2 billion on annual revenue.
The OECD said four countries – Kenya, Nigeria, Pakistan and Sri Lanka – had not joined the agreement. Late moves from Hungary and Estonia on Friday meant all EU countries signed up.
There has been a mixed reaction in developing and lower-income countries and tax justice campaigners argue that the deal is too favourable to the big players.
“Today’s agreement will make our international tax arrangements fairer and work better,” OECD secretary-general Mathias Cormann said in a statement. “This is a major victory for effective and balanced multilateralism.”
The OECD said the minimum rate would see countries collect about $150 billion in new revenues annually while taxing rights on more than $125 billion of profit would be shifted to countries where big multinationals earn their income.
Reacting to the OECD announcement, Minister for Finance Paschal Donohoe said “the revised statement builds on the July statement and provides the certainty necessary for Ireland to join the agreement”.
The revised draft deal outlines the broad terms for implementing the two so-called pillars of the agreement, one changing where companies pay some of their tax and the other imposing the minimum 15 per cent rate.
“The deal gives clarity on the main political issues and moves us a big step closer,” said Gerard Brady, chief economist at employers’ body Ibec. “However, a significant amount of technical detail will need to be worked out between now and the 2023 target date for worldwide implementation. We also have the not insignificant prospect of two EU directives needed next year and a heavily contentious process ongoing in the US Congress.”
The high level of sign up to the OECD agreement now means the deal is likely to be implemented, provided the Biden administration can get its tax package through the US Congress. The tax legislation is tied up with the Biden economic reform programme, which is proving highly contentious.
The OECD text has a general section referring to the US minimum tax rules – the so-called Gilti rules – to which Congress is discussing significant changes. It says that rules will be set to ensure a “level-playing field”.
One section of the OECD text says that countries must apply the 15 per cent minimum to all companies with turnover above €750 million but can choose a lower turnover limit for their own companies.With proposals before Congress to use a $500 million limit, this could yet raise questions for Ireland about the turnover limit applied here for the 15 per cent for these US firms.
While the OECD deal has attracted wide support, many developing countries say their interests have been sidelined, with charity Oxfam calling the agreement “a rich country stitch-up”.
Argentine economy minister Martin Guzman said on Thursday the proposals forced developing countries to chose between “something bad and something worse”. Argentina had reluctantly signed up to the previous version of the deal. “It is shameful that the legitimate concerns of developing countries are being ignored while countries like low-tax Ireland are able to water down the already limited aspects of the deal,” Oxfam’s tax policy lead Susana Ruiz said in a statement.
There was a considerably warmer welcome in Paris, with French finance minister Bruno Le Maire stressing that for the past four years, “France played the leading role, from beginning to end” in obtaining the agreement.
“France fought for this accord from the first day, against all the odds. We sometimes had hope, sometimes setbacks, but we held on to the end.”
No other country put as much pressure on Ireland and other reluctant EU member states.
“Ireland’s endorsement of this accord is very good news,” Mr Le Maire said. “I thank Paschal Donohoe for his constructive work. All the Europeans are on board, and we can all collectively congratulate ourselves for that. The next step will be to transcribe this accord legally during the French presidency of the European Union” which begins on January 1st, 2022.
In other words, France will seek an EU directive incorporating the minimum corporate tax rate into EU regulations.
“It is a fiscal revolution because we will never go back. It is a fiscal revolution because it means more justice in tax matters. At last, the digital giants will pay their fair share of tax in the countries where they make profits, including in France. At last, we will be able to fight more efficiently against fiscal optimisation, thanks to the minimum tax rate,” said Mr Le Maire, adding that the culmination of the negotiations carried “a great deal of emotion”.
Clément Beaune, the French minister for European affairs who published a letter in this newspaper on July 6th exhorting Ireland to support the OECD agreement, said Dublin’s last-minute acceptance was “a very positive and courageous decision by Ireland” which showed that “Ireland has chosen Europe”.
Although this was “a national choice” by Ireland, Mr Beaune said. “I think that the constructive exchanges with her partners, in particular France, were very useful in establishing mutual understanding.”
President Emmanuel Macron’s trip to Dublin on August 26th “was an important moment” of the process, Mr Beaune added. – Additional reporting: Reuters