Representatives of 130 countries, whose economies account for 90% of the world’s gross domestic product, have agreed on a global minimum tax rate for corporations. It is because of this agreement, what has been called a historic event in world economic diplomacy, that the US Treasury Secretary is receiving congratulations from President Biden.
Along with Western countries, the signatories to the agreement include China, Russia, India and all members of the Grand Platoon. According to the agreement document, the minimum tax rate for corporations is set at 15%. Prior to the agreement, countries sought to attract corporations at lower interest rates.
“No nation has won this race. With low taxes, not only can you not attract new businesses, but also hinder significant investments in areas such as infrastructure, education, pandemic control. In the United States, this agreement ensures that a fair share of this burden is borne by corporations, “said Janet Yellen, Secretary of the Treasury.
US leadership to reach agreement
The Organization for Economic Co-operation and Development (OECD) has been working since 2013 to introduce a rational tax approach to global corporations. Experts say that with corporate strategies to avoid taxes, governments are losing billions of dollars every year.
But, in the last few years, the project of the organization has almost stopped.
“It is safe to say that the Biden administration has overcome this barrier,” said Daniel Boone, vice president of the Global Tax Fund.
“At this time last year, everything was deadlocked. “Biden invested a lot of political capital in convincing other countries that it was necessary to sign the agreement.”
What does the agreement do
While much of the details of the agreement remain negotiable, the main idea of the agreement is for companies to pay profit tax in the countries where they use their products and services.
The agreement will introduce a profit tax distribution system in the countries where corporate goods or services are purchased. The minimum income tax rate is set at at least 15% of that profit.
In the case of existing regulations on the amount of taxation for specific corporations, countries will be able to equalize the tax rate to the minimum of 15% specified in the agreement.
An early celebration?
The director of the US National Economic Council, Brian Dizzy, links the agreement reached to the Biden administration’s efforts to raise corporate taxes and implement other tax-related reforms.
He said the agreement “creates an impetus for corporate tax reform in the United States.” “It will not only improve the competitiveness of the United States, but also make it more attractive for investment.”
Despite the White House sentiment, there are critics who say that it may be premature to talk about the success of the agreement, and to assess it only after its implementation is correct.
“The biggest obstacle that has not been talked about in the media is the fundamental fact that in democracies, national legislatures see themselves as primarily responsible for making tax laws,” said Gary Hefbauer, a researcher at the Peterson Institute for International Economics. Before that, Heffbauer held senior positions in the Treasury Department at the Department of International Taxation.
“In the United States, the Senate Finance Committee, senators, congressmen really think that they are writing the tax laws themselves, and they are not going to welcome everything that the Treasury Secretary agrees to,” Heffbauer said.
He said the same applies to the EU, where all tax laws in force in the EU must be agreed upon unanimously. Several EU countries, including Ireland, Hungary, Estonia and Cyrus, have not signed the agreement and are unlikely to do so in the future.
Part of the experts say that the legislation of the national legislatures is less interesting in this case.