Organization for Economic Cooperation and Development Secretary-General Mathias Cormann (R) and U.S. Secretary of State Anthony Blinken appeared at the 60th OECD ministerial meeting in Paris on Wednesday. Photo by Ian Landsdon/EPA-EFE/Pool
Oct. 9 (UPI) -- The world's developed nations plan to impose a minimum 15% global minimum corporate tax rate under a "historic" new agreement meant to prevent businesses from moving their profits to low-tax countries.
The Organization for Economic Cooperation and Development, whose members represent more than 90% of the global GDP, announced the agreement in a statement issued Friday in Paris after years of negotiations.
The "two-pillar solution" will be delivered to the G20 Finance Ministers meeting in Washington on Wednesday, then to the G20 Leaders Summit in Rome at the end of the month.
For it to be implemented, however, the deal will need to be approved by the legislatures of all 136 countries participating in the agreement -- a process its backers hope will be completed by 2023.
"Today's agreement will make our international tax arrangements fairer and work better," OECD Secretary-General Mathias Cormann said in a written statement. "This is a major victory for effective and balanced multilateralism. It is a far-reaching agreement which ensures our international tax system is fit for purpose in a digitalized and globalized world economy.
"We must now work swiftly and diligently to ensure the effective implementation of this major reform."
"Today's agreement represents a once-in-a-generation accomplishment for economic diplomacy," added U.S. Treasury Secretary Janet Yellen. "We've turned tireless negotiations into decades of increased prosperity -- for both America and the world."
The deal was announced only days after the "Pandora Papers" leak focused attention on how tax havens -- including in the United States -- have allowed the world's rich and well-connected to hide vast fortunes from the scrutiny of government revenue collectors.
Under the first pillar of the deal, taxing rights on more than $125 billion of profit per year -- notably affecting giant technology companies like Amazon and Facebook -- would be reallocated to the markets where the profits were actually made, rather than to tax-haven jurisdictions.
The second pillar introduces a global minimum corporate tax rate set at 15%, applying to companies with revenue above $868 million. It is estimated to generate around $150 billion in additional global tax revenues annually.
A breakthrough came this week after holdout Ireland, which has one of the world's lowest corporate tax rates of 12.5%, succeeded in its efforts to strike "at least" from the proposed minimum corporate tax rate of "at least 15%" -- signaling that the rate will not be pushed higher in the future.
Hungary, which has emerged as a corporate tax haven with its rate of 9%, also opposed the deal until it won a concession allowing multinationals to reduce the amount subjected to the minimum tax for a transition period of 10 years rather than the five years originally sought.
Some advocates for closing global tax loopholes, however, criticized the 15% level as "far too low," especially considering the average statutory corporate tax rate worldwide, now around 24%, stood at 40% in 1980.
"Calling this deal 'historic' is hypocritical and does not hold up to even the most minor scrutiny," Susana Ruiz of Oxfam International said in a written statement. "The tax devil is in the details, including a complex web of exemptions that could let big offenders like Amazon off the hook."
Citing the 10-year grace period and "additional loopholes," Ruiz said the agreement will have "practically no teeth."
"This deal is an unacceptable injustice," she said. "It needs a complete overhaul. The OECD and the G20 must bring fairness and ambition back to the table and deliver a tax plan that won't leave the rest of the world to pick up their crumbs and scraps."