The majority of the world's economies on Friday sealed a deal on global tax reforms to be implemented from 2023 to ensure that major international firms pay their fair share of tax no matter where they are located, the Organization for Economic Cooperation and Development said.
In a virtual meeting of an OECD-led project to review the century-old international tax system involving 140 countries, 136 nations agreed on the new rules that include setting a global minimum corporate tax rate of 15 percent, one of the unresolved issues when an outline agreement was concluded in July.
A new tax will also be levied on multinational giants with global annual revenue of over 20 billion euros ($23 billion) and a profit margin of more than 10 percent. Profit minus 10 percent of sales will be taxed at 25 percent, according to the Paris-based club of 38 mostly wealthy nations.
The group vowed to abolish digital service taxes, which countries such as France, Italy and Britain have already introduced to secure more revenue, intending to target digital giants such as Google LLC and Apple Inc.
Momentum for the development of universal taxation rules for companies operating across borders had been building in recent years amid criticism that major tech firms, including Facebook Inc. and Amazon.com Inc., book profits in low-tax jurisdictions.
The July agreement had defined the introduction of a common tax rate floor of "at least" 15 percent for globally operating firms and that the new tax rate would be "between 20 to 30 percent."
The deal came a day after Ireland, a major holdout nation participating in the project, reversed its objection to the agreement, with Irish Finance Minister Paschal Donohoe saying the government has "secured the removal of 'at least' in the OECD text" as it had demanded.
Ireland and Hungary, another country that had objected but later agreed to the global tax deal, have set effective corporate tax rates of 12.5 percent and 9 percent, respectively, to attract overseas companies.
The participating governments are supposed to draw up a multilateral treaty next year while preparing for necessary revisions of domestic laws and regulations to implement the new rules, the OECD said.
The governments also expect the new tax rules to help beef up their coffers, depleted by large-scale fiscal measures taken in response to the coronavirus pandemic.
In a statement, Japanese Finance Minister Shunichi Suzuki welcomed the move by the global community as "a historic agreement" and a "once-in-a-century reform of the international tax regime," noting how Japan "has consistently been playing a leading role" in the project since its inception in 2013.
U.S. Treasury Secretary Janet Yellen said the agreement means that "virtually the entire global economy has decided to end the race to the bottom on corporate taxation."
"Rather than competing on our ability to offer low corporate rates, America will now compete on the skills of our workers and our capacity to innovate, which is a race we can win," she added.
The tax reform plan is expected to be backed by the finance chiefs of the Group of 20 major economies when they hold a face-to-face gathering in Washington next Wednesday.
