After 130 countries and jurisdictions agreed to plans for a worldwide minimum corporate tax rate, efforts to require multinational corporations to pay an equitable share of tax have taken a significant step forward.
The Organisation for Economic Co-operation and Development (OECD) published a statement pledging each of the countries to a two-pillar plan to dramatically change the global tax system, marking a watershed moment for the global economy.
The current achievement builds on a G7 accord reached in London last month, bringing together all members of the G20 group of the world's largest economies, including China, India, Brazil, and Russia.
However, other nations, including as Ireland, Hungary, and Estonia, have yet to sign up to the reforms, which are being negotiated by the Paris-based OECD with 139 participants.
Barbados, Kenya, Nigeria, Sri Lanka, and St Vincent and the Grenadines are among the countries that have yet to sign. Peru voted no because it now lacks a government.
The Cayman Islands and Gibraltar were among the signatories to the agreement, which has low or nil company tax rates and is widely regarded as a tax haven. According to those close to the situation, the "writing was on the wall" for these locations.
The agreement's basis is that multinational corporations must pay a minimum of 15% tax in any country where they operate. It also contains measures to discourage tech giants and other multinationals from moving money to tax havens by allowing signatory countries to tax the world's largest firms on revenues generated within their borders.
Profit shifting is likely to raise more than $100 billion (£73 billion), according to the OECD. The global minimum tax rate is estimated to raise about $150 billion.
The statement comes ahead of more tax reform talks between finance ministers at the G20 meetings in Venice next month, with the goal of reaching a final worldwide agreement by October and implementing it in 2023.
“After years of rigorous effort and negotiations, this historic package will ensure that major multinational firms pay their fair share of tax everywhere,” said OECD Secretary General Mathias Cormann.
Some countries and jurisdictions with low tax rates, such as Cyprus, were excluded from the OECD discussions, while the nine countries that declined to join the agreement at this point had low tax rates of less than 15%. Ireland has a headline corporation tax rate of 12.5%, while Hungary has a rate of 9%.
Ireland has been in cordial and constructive talks, according to sources, but is holding off on signing a deal because of its lower tax rate and a desire to see further movement in the US, where Joe Biden must drive tax measures through a divided Congress.
However, there is still hope for a global agreement. 90 percent of the world's economy is represented by the 130 countries that have joined so far. The achievement, according to Biden, puts the globe "within striking distance of a full global agreement to end the race to the bottom on corporate taxes."
The OECD statement stated that financial services and natural resource industries will be exempt under the "pillar one" accord. Finance companies and mining conglomerates, on the other hand, will be subject to the minimum tax rate. Rishi Sunak, the UK chancellor, had campaigned for the City of London to be left out of the worldwide tax revamp, citing worries that it would harm the UK financial services industry.
