'Domino effect' predicted following agreement on levy for multinationals
Long-running efforts to introduce a worldwide minimum tax rate for multinationals of 15 percent have come a significant step closer to success after the European Union, home to many of the world's largest corporations, settled internal disputes and approved measures backing the proposal.
At a meeting of the Organisation for Economic Co-operation and Development, or OECD, in Paris in Oct 2021, plans for the flat rate were agreed by 136 countries, a breakthrough greeted at the time by the group's Secretary-General Mathias Cormann as "a major victory for effective and balanced multilateralism… which ensures our international tax system is fit for purpose in a digitalized and globalized world economy", adding that members must act "swiftly and diligently" to ensure its effective implementation.
The aim was for a multilateral convention to be signed in 2022, and its measures put into place in 2023, but so far things have failed to progress, with Poland and Hungary blocking its progress on an EU level.
This impasse appears to have cleared, however, and the 27 EU member states are now expected to put the plans into domestic legislation by the end of next year.
The Irish Times newspaper reported that they finally went through after Hungary, which is involved in an unrelated stand-off with the EU about post-pandemic funding, dropped its veto.
Individual countries including South Korea, Switzerland the United Kingdom have already begun drafting legislation, with others, including the United States and Australia having started consultations to do the same, but Achim Pross, acting deputy director at the OECD's tax center, told the Financial Times the European breakthrough could lead to "a domino effect".
The Czech Republic currently holds the rotating presidency of the council of the EU, and its finance minister, Zbynek Stanjura, said the agreement sent a strong message to the business world.
"The largest groups of corporations, multinational or domestic, will need to pay a corporate tax that cannot be lower than 15 percent globally," he said.
The EU's economy commissioner Paolo Gentiloni called it "a crucial step towards tax fairness and social justice… minimum taxation is key to addressing the challenges a globalized economy creates".
Individual national leaders also welcomed the progress, with Germany's Chancellor Olaf Scholz calling it a "project close to my heart "and France's President Emmanuel Macron saying that his country had been backing the idea for more than four years.
The deal will apply to all multinational companies with annual revenues in excess of 750 million euros ($796 million), and Julian Feiner, director of tax at law firm Clifford Chance, told the FT that the agreement at EU level would "proliferate wider adoption", with the next few months being an "important window" to adopt the new proposals and give businesses time to adjust to their introduction.
The next major challenge is the introduction of the measures in the US, but Peter Barnes, a tax specialist at the Washington law firm Caplin and Drysdale, said the EU breakthrough "should prompt "Congress to align OECD rules with similar but not identical rules of its own that it has already proposed.