By Jeph Ajobaju, Chief Copy Editor
Abuja has snubbed the deal agreed by 130 countries to generate $150 billion yearly from tech tax floated by the Organisation for Economic Co-operation and Development (OECD) and championed by United States President Joe Biden.
The pact devised by the world’s leading economies enforces a global minimum corporate tax rate of 15 per cent on multinationals at negotiations held in Paris.
Targeted are big tech firms that exploit tax loopholes and tax havens to avoid paying tax at their home bases and where they operate overseas.
Paying fair share everywhere
The BBC reports that officials from 130 countries agreed to overhaul the global tax system to ensure big companies “pay a fair share”, meaning a minimum 15 tax rate, wherever they operate.
US Treasury Secretary Janet Yellen dubbed it “historic … for economic diplomacy”
Tax on big tech firms has been a source of friction between the US and others.
The OECD said the plans could generate about $150 billion (£109 billion) in tax revenues a year but confirmed that Ireland and Hungary – countries with low corporate taxes – had not joined the deal on the global minimum.
All G20 countries, such as the US, United Kingdom, China and France, did back the agreement.
Participating governments are now expected to try to pass relevant laws to bring in the minimum, although details such as possible exemptions for certain industries are still up for negotiation.
“A detailed implementation plan together with remaining issues will be finalised by October 2021,” said a statement signed by 130 out of 139 countries and jurisdictions involved in the talks.
According to the BBC, countries have also signed up to new rules on where the biggest multinational companies are taxed.
They would see taxing rights on more than $100 billion of profits shift to countries where profits are generated, rather than where a business might have its headquarters.
No nation has won yet
Yellen said the agreement sent a sign that a “race to the bottom” on tax rates was coming to an end.
“For decades, the US has participated in a self-defeating international tax competition, lowering our corporate tax rates only to watch other nations lower theirs in response.
“The result was a global race to the bottom: Who could lower their corporate rate further and faster?”
She insisted that “no nation” had won the race.
The Biden administration has been pushing for a deal internationally while it seeks to raise taxes domestically. It has, for example, called for an increase in US corporate tax rate from 21 per cent to 28 per cent.
But the news was also welcomed by other finance ministers.
UK Chancellor Rishi Sunak cited last month’s G7 talks in London, where rich nations agreed to battle tax avoidance: “We achieved a historic agreement that will see the largest multinational tech giants pay the right tax in the right countries.
“I’m pleased to see this momentum has continued and welcome the OECD’s progress today.
“I look forward to continuing discussions with our global partners in the coming months with a view of finalising the details by October,” he said.
French Finance Minister Bruno Le Maire described it as the “most important international tax deal reached since a century” during a news conference.
And German Finance Minister Olaf Scholz said while details still needed to be worked out, the agreement marked “colossal progress” and would allow countries to increase spending on “important priorities” such as infrastructure and efforts to fight climate change.
Two pillars of tax framework
Nairametrics adds that despite the immense benefits, however, Nigeria and Kenya were the only two African countries among the eight that abstained from signing the pact.
The others are Estonia, Hungary, Ireland, Barbados, Sri Lanka, St Vincent and Grenadines.
The OECD explained that the framework is divided into two pillars. Pillar One ensures a fairer distribution of profits and taxing rights among countries.
It reallocates taxing rights over multinationals from their home countries to the markets where they operate and earn profits, regardless of whether or not firms have a physical presence there.
Pillar One also reallocates every year taxing rights on more than $100 billion profit to market jurisdictions.
Pillar Two puts a floor on competition over corporate income tax by introducing a global minimum corporate tax rate that countries can use to protect their tax bases.
It also caps the minimum corporate income tax rate at 15 per cent.
Accommodates various interests
OECD Secretary General Mathias Cormann said “after years of intense work and negotiations, this historic package will ensure that large multinational companies pay their fair share of tax everywhere.
“This package does not eliminate tax competition, as it should not, but it does set multilaterally agreed limitations on it.
“It also accommodates the various interests across the negotiating table, including those of small economies and developing jurisdictions.
“It is in everyone’s interest that we reach a final agreement among all Inclusive Framework Members as scheduled later this year.”
Update on key tax elements
Nairametrics adds that the framework updates key elements in the oil international tax system which is no longer fit the new globalised and digitalised economy.
Additional benefits are also expected to arise from the stabilisation of the international tax system and certainty for tax payers and tax administrations.