Washington (dpa) – About 130 countries have agreed on a global minimum tax for internationally active companies.
The Organization for Economic Co-operation and Development (OECD) said countries participating in the agreement account for about 90 percent of global economic output.
Federal Finance Minister Olaf Scholz (SPD) sees the agreement as a “tremendous progress” on the way to greater tax justice. He spoke of “a real, really massive change that we’re going to see over the next few years and decades.” In Washington, he said, the tax race to the bottom is over.
US President Joe Biden said a global deal is within reach that would end the race for the lowest tax rates. Corporations can no longer play countries against each other in order to increase their profits at the expense of taxpayers. Biden said the agreement will therefore allow the additional tax revenue to be used to make important investments in order to maintain competitiveness.
The OECD said the agreement, details of which will be worked out by October, is the result of nearly a decade of negotiations. “The framework concept updates the central elements of the now-100-year-old international tax system, which no longer meets the requirements of the globalized and digital economy of the 21st century,” she added. According to reports, China, the world’s second largest economy, has approved the agreement. The same applies to India.
At the beginning of June, the G7 finance ministers agreed on a global tax reform. Next weekend, the G-20 finance ministers, including China, want to shake their heads. In addition to a minimum tax of 15 percent, it must be ensured that large corporations will pay taxes in the future in the countries where they make their sales and profits. This is “regardless of whether they have a physical presence there,” as the Organization for Economic Co-operation and Development emphasized. The regulation specifically targets large digital companies such as Amazon, Google and Apple.
So far, big companies are finding ways to pay almost no taxes at all, Schulz said. “The big digital platform companies have been particularly keen to avoid paying taxes.” Many have talked their way out and have declared that they are obeying the rules. “They will do it in the future – they alone will pay taxes then too, in Germany as well. In general, we will benefit from this understanding being made there.”
The Biden government had spoken in favor of imposing a global minimum tax in April, giving new background winds to efforts with the sway of the world’s largest economy. The previous US administration of then-President Donald Trump had rejected the global minimum tax rate. She feared it would hurt big American companies.
The legal implementation of the agreement in all participating countries is likely to take some time. In addition, the agreement will be as strong as the weakest link: if some of the countries involved refuse to agree, it is likely that many companies will still have options to avoid high taxes in some cases.
US Treasury Secretary Janet Yellen spoke of a “historic day” for economic diplomacy. So far, states have undermined each other in doing business with companies. “No country has won this race,” Yellen said. On the other hand, lower tax rates did not attract any new business. On the other hand, these low rates have deprived countries of funds for important investments in infrastructure, education and epidemic control.