The formation of a global standard corporate tax rate is shaping up. The Irish and Estonian governments agreed on Thursday (October 7) to raise tariffs to join the global tax reform agreement negotiated by the OECD, thus removing one of the last obstacles to the project’s success. “After detailed discussions, the government accepted my recommendation to join Ireland in the International Convention on Taxation,” Finance Minister Pascal Donohue told a news conference.
He said “this is a very important step” in global reform, and to reach a compromise, the agreement now talks about formulating a corporate tax rate of 15% or “at least 15%”. Dublin opposed it because it opened the door to future increases.
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In the process, the Estonian Prime Minister announced that Tallinn had joined the agreement. This “will not make a difference to most Estonian financial operators and will only affect the subsidiaries of large multinational corporations,” Prime Minister Kaja Kallas stressed.
Hungary can follow
All eyes are now on the remaining Hungary among the countries that have not yet signed the treaty. After a meeting with US Secretary of State Anthony Blinken in Paris on Wednesday, Hungarian Foreign Minister Peter Sigarto wrote on Facebook: “Hungary is ready to compromise (…) if it can come to an agreement that will not adversely affect the Hungarian economy (…).
The global tax reform overseen by the Organization for Economic Co-operation and Development (OECD) was restored when US President Joe Biden came to power, thus reaching a milestone. Dublin, the world’s lowest tax rate at 12.5%, multiplied on Wednesday by proposals to compromise after months of blockade.
The historic agreement, announced in July, would then include multinational companies with a turnover of at least 750 million euros, including 134 countries and several large technology groups.
The Irish finance minister welcomed the deal on Thursday, saying it would bring “certainty” and, in his opinion, allow Dublin companies to remain “an attractive destination”. “This is an important decision of our industrial policy, our future, it is complex.
Multinational corporations are fighting tax evasion
Following the Irish and Estonian decisions, US Treasury Secretary Janet Yellen said, “We are on track to achieve the kind of change that only happens to one generation, creating the lowest tax rates in the world, which will balance competition and promote employment and investment in the United States.”
The reform is intended to combat the tax evasion of multinational corporations, mostly Americans, which are registered in countries with the lowest tax rates, at a time when states are seeking funds to restore public money damaged by the Pandemic.
By signing this compromise, Dublin is shaking up its low-tax economic model, which has helped attract many multinational companies, especially technological or pharmaceutical giants, whose European headquarters are registered there.
According to a poll commissioned by The Irish Times, a large portion of Irish people are in favor of keeping the rate at 12.5%, which has enabled the country to achieve rapid economic growth over the past 20 years.
A “rich nation-building” in Oxfam’s opinion
Oxfam, an NGO, on Thursday lashed out at the deal, saying it was “a historic deal to end the era of tax havens, rather than a patchwork of rich countries”.
“The proposal to set the global (minimum) tax rate at 15% would serve rich countries greatly and increase inequality. The G7 and the European Union will recover two-thirds of the new tax revenue, but they represent the poorest 3%. More than a third of the world’s tax policy,” he said. Officer Susanna Ruiz lamented.
The OECD’s “inclusive framework”, an expanded format that unites more than 140 countries, will meet on Friday to try to approve the final parameters of the reform ahead of next week’s G20 ministerial meeting. The goal is to implement the reform by 2023. The time limit will come soon.
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