Why the OECD Global Corporate Tax Agreement?

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Crucial momentum was lost in the Organization for Economic Co-operation and Development (OECD) global corporate tax deal before Christmas. It happened when the Biden administration failed to get the Senate to pass its Build Back Better Bill – including a provision for the US equivalent of a minimum 15% corporate tax rate. .

It is now clear that the implementation of the agreement in the European Union also faces challenges, as some countries question whether the United States will actually be able to deliver on its promises.

The OECD agreement has two parts – the minimum tax rate of 15% and a change in where large multinationals pay part of the tax. It was a delicate compromise and to which the Republic joined only belatedly when there was a commitment that the minimum rate would be 15%, and not “at least 15%”.

Doubts over the ability of the United States to pass the required legislation were cited by Poland, Hungary and Estonia at a meeting of EU finance ministers on Tuesday. They argued that if the EU signed on to the minimum tax plan now, it would lose influence over the US, especially with regard to the other part of the agreement relating to the reallocation of rights. taxation.

France, which now holds the presidency, is pushing for progress on the minimum tax plan by March, ahead of the presidential election in April. The key question now is whether some of the countries that oppose it will block progress, as EU tax law requires unanimity.

Donohue in favor

From the point of view of the Republic, the adoption of the directive would settle the question of the minimum tax rate and avoid any future attempt to introduce a higher rate. This is how Finance Minister Paschal Donohue came out in favor of an increase.

The other part of the OECD deal – the reallocation of taxing rights – would cost the Irish Treasury. However, if this part of the deal collapses, many EU countries would apply their own digital taxes, which would also cost Ireland revenue and likely trigger tensions with the US.

As the Biden administration – which championed the OECD deal – now struggles to make progress at home, the fate of five years of OECD negotiations hangs in the balance.

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