World leaders reach landmark deal on a global corporate tax rate

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  • Success has come after some changes were made to the original text.
  • Notably the 15% rate will not be raised at a later date, and that small businesses will not be affected by the new rates.
  • It helped Ireland – a longtime opponent of raising corporate tax rates – to come on board with the plan.

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The Organization for Economic Co-operation and Development on Friday announced a major breakthrough on corporate tax rates after years of disagreement.

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The Group of Developed Countries agreed on a global minimum corporate tax rate of 15%. This is a big change for smaller economies, such as the Republic of Ireland, which have attracted international firms – largely – through a lower tax rate.

“The historic deal agreed by 136 countries and jurisdictions representing more than 90% of global GDP, reinvested profits of the world’s largest and most profitable MNEs from approximately US$100 to 125 billion to countries around the world. Allottees, while ensuring that these companies pay, have their fair share of tax wherever they operate and make profits, the OECD said in a statement on Friday.

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The success came after some changes were made to the original text, notably that the 15% rate would not be raised at a later date, and that small businesses would not be affected by the new rates.

It helped Ireland – a longtime opponent of raising corporate tax rates – to come on board with the plan.

Hungary, another long-standing skeptic about a global tax deal, also changed its mind after receiving assurances that there would be a longer implementation period.

The countries now have to work out some outstanding details, so the new deal is set to start during 2023.

US Treasury Secretary Janet Yellen said in a statement that the agreement is “a once-in-a-generation achievement for economic diplomacy.”

Yellen commended several countries that “decided to end the race on corporate taxation to the bottom,” and hoped that Congress would use the reconciliation process to quickly put the agreement into practice in the US.

“International tax policymaking is a complex issue, but the mysterious language of today’s agreement recognizes how simple and broad the stakes are: When the deal goes into effect, the US will make the global economy a much easier place to find jobs, earn a living.” will find, or the scale of, a business,” Yellen’s statement said.

What’s in the agreement?

The deal marks a change in tax policy as it not only imposes a minimum corporate tax rate, but it also forces companies to pay taxes based on where they operate – not just where they are headquartered.

The exact formula to know how much companies are owed in different jurisdictions is a detail that still needs to be finalised.

The announcement by international leaders also came partly because of the coronavirus pandemic, which renewed the need for fair taxation, given that governments are scrambling for new sources of funding.

Upon being elected in 2020, President Joe Biden made it clear that he wants to tax the rich more while attempting to address inequality in America

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