The deal is closed: large multinationals will be taxed in the country where they operate and a worldwide corporate tax rate of 15 percent will apply in at least 136 countries. As at Friday 8 October, 140 member countries discussed on the topic, leaded by the Organisation of Economic Development and Cooperation (OECD). The OECD and the European Commission have been aiming for a firmer approach to tax avoidance. Out of these 140 countries, 4 countries did not sign the agreement; Kenya, Nigeria, Pakistan and Sri Lanka. It is expected that these countries will follow soon and therefore will apply the corporate tax rate of 15 percent.
The proposed global corporate tax plan
The idea behind this agreement is that multinationals will be equally taxed in every country where they provide goods and/or services. Companies with a worldwide turnover of at least 20 billion euros and a profit margin of more than 10 percent, will be taxed for about a quarter of the profits in the countries where they operate.
Moreover, a minimum corporate tax rate of 15% will be applied worldwide to companies with a turnover of 750 million or more. Under the plan, countries can levy additional taxes to a multinational when another country did not levy tax at or above the minimum rate. Before the agreement this was not possible.
Criticism on the global corporate tax plan
There is also criticism on this ‘historic deal’. Among others, Oxfam Novib points out that multinationals, such as Amazon, still have possibilities to avoid these taxes by applying complicated constructions and exemptions. Oxfam also said that the 15% minimum rate was too low since the corporate tax rate in industrialised countries averages at 23.5%.
Tax Justice Network (TJN) is also sceptical and would like further negotiations on the tax plan. The presented plan now only affects about 100 multinationals due to the high turnover thresholds. These multinationals can still shift their profits in order to pay little tax. “This was a historic opportunity, but the OECD has failed to come close to its original ambition.”, said the TJN.
The proposal for the global tax plan will be enshrined in an international treaty in the coming months. First the treaty must pass the American Senate. As especially the Republicans are resisting, this could be still a challenge. However, Paul Tang, MEP for the labor Party and chairman of the European Taxation Committee pictures a positive perspective as Biden already has successfully brought some changes in corporate taxation in a short amount of time.
Currently a corporate tax rate of 12,5 percent is charged in tax haven Ireland. Due to the lower corporate tax rate Ireland attracted several multinationals such as Google, Facebook and Apple. Therefore, it was a surprise that also Ireland insisted with the agreement for a minimum profit tax rate of 15%.
The aim of the OECD is to apply the minimum profit tax rate of 15% as of 2023.