The most ambitious tax overhaul in a century suffered another setback on Monday when the Organization for Economic Co-operation and Development, which oversees global negotiations, said proposed rules on how the world’s biggest companies would be taxed would not be revealed until the middle. next year.
The delay is expected to push the enactment of the deal, which was expected by next year, to at least 2024. This will give negotiators more time to iron out a slew of complicated details on how to rewrite international tax treaties. and to adopt a global minimum. 15% tax in over 130 countries.
But it could also give governments more time to consider pulling out of the pact as fears about inflation and a global recession escalate and many countries, including the United States, face elections.
“It is important to balance the political interest of rapid implementation with the need to properly finalize the design of innovative new rules intended to last for decades,” wrote Mathias Cormann, Secretary-General of the OECD, in a report to the finance ministers of the Group of 20 nations, who will meet in Indonesia this week.
The tax deal, which was reached last October, aims to significantly raise taxes on many large companies and end an international fight over how tech companies are taxed. Its architects said it would end the global “race to the bottom” for corporate tax rates.
The two-pronged approach involves countries adopting a minimum tax of 15% so that companies pay a rate of at least that much on their global profits, regardless of where they locate. It would also allow governments to tax the world’s largest and most profitable companies based on where their goods and services are sold rather than where they are located.
Both sides of the deal are stalled.
The OECD’s lag relates to the challenges negotiators have faced in figuring out how to reallocate taxing rights between nations.
“We will continue to work as quickly as possible to finalize this work, but we will also take all the time necessary to put the rules in place,” Cormann said in a statement. “These rules will shape our international tax arrangements for decades to come. It is important to set them up correctly. »
The enactment of the global minimum tax has encountered obstacles in the United States and Europe.
Hungary prevents the European Union, which needs the unanimous support of its members, from enacting the minimum tax of 15%. Earlier, Poland had temporarily withdrawn its support for the deal.
In the United States, the Biden administration planned to enact tax changes through a sweeping climate and economic package that Democrats had hoped to pass along party lines last year. But that proposal has largely fallen apart, and the Treasury Department is instead hoping the changes needed to bring the United States into compliance with the deal will be included in a narrower spending bill that Democrats hope to pass this summer.
The Treasury Department said Monday it supports the OECD’s delay and does not view it as a setback.
“The Treasury welcomes the additional year agreed at the OECD to allow more time for negotiations between governments and consultations with stakeholders,” said Michael Kikukawa, a spokesman for the Treasury, adding: Considerable progress has been made, and additional time will allow us to get all of this historic agreement right.
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