The Organisation for Economic Co-operation and Development has finalized a plan on global tax laws that could lead to Big Tech paying more in taxes no matter where they operate.
The deal involves 136 countries and jurisdictions that constitute about 90 per cent of Earth’s gross domestic product. The plan imposes a minimum 15 per cent tax rate on corporate profit starting in 2023 on large multinational companies, the OECD said.
The goal being to discourage Big Biz from moving profits out of certain countries to low-tax havens and avoid levies. How effective this measure will be, we’ll have to see: we’re told it could raise $150bn in additional annual tax globally. There is a caveat: this minimum tax rate will apply to companies with yearly sales above €750m.
Apple, Google, Amazon, and Microsoft have moved profit across borders and wrangled existing laws to cut their tax bills. One such beneficiary was Ireland, in where the tech companies and other corporations used legal arrangements – some known as the “Double Irish Dutch Sandwich” – to reduce their tax bills.
OECD has 140 members, and Kenya, Nigeria, Pakistan and Sri Lanka haven’t signed on to the agreement yet.
The global tax framework is an accomplishment for “economic diplomacy,” US Treasury secretary Janet Yellen said in a statement.
“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 plan will also see countries able to tax about 100 of the planet’s most profitable multinational companies, and it’s estimated this will apply to $125bn of corporate profit. That is to say, tens of billions of dollars in taxable profit by multinational organizations will be “reallocated” to nations, undoing efforts to route net income to, say, tax havens.
“Developing country revenue gains are expected to be greater than those in more advanced economies, as a proportion of existing revenues,” the OCED added in a statement.
Eight of the top ten companies in the world by market capitalization are tech firms, according to a March 2021 study [PDF] by PwC. Apple’s at the top, Microsoft is third, followed by Amazon, Alphabet, Facebook, Tencent, Alibaba, and Tesla.
But countries like Argentina are concerned that the tax plan is geared more towards wealthy nations, and won’t level the playing field, Reuters reported.
“We policymakers from developing countries are forced to chose before something bad and something worse, worse is to get nothing and bad is what we are getting,” Argentine Economy Minister Martin Guzman said ahead of finalized plan being announced, according to the newswire’s report.
The plan will be discussed in G20 meetings in Washington DC later this month before it can go any further. ®