Finance chiefs from around the world welcomed moves towards greater tax justice on Thursday, as countries agreed on a global tax overhaul that the US treasury secretary hailed as “historic.”
In Washington, 130 countries agreed to guarantee a minimum tax rate for companies within the framework of the Organisation for Economic Cooperation and Development (OECD).
German Finance Minister Olaf Scholz described it as “colossal progress” in tackling tax avoidance practices.
The countries represented more than 90 per cent of global gross domestic product, Scholz said, greeting the move as a “massive change that we’re going to see for years and decades to come.”
The agreement will end the tax race to the bottom, he said.
French Finance Minister Bruno Le Maire praised it as “a historic, ambitious and innovative agreement.”
It builds upon a June meeting of finance ministers from the Group of Seven (G7) major industrialized nations in which they agreed on a global tax reform for multinational corporations, and this is due to be discussed during the G20 finance ministers’ meeting next week.
Alongside a minimum tax rate of 15 per cent, they also want to ensure that large corporations pay taxes where they make their sales.
Scholz said such corporations had found ways to avoid paying almost any taxes.
US Treasury Secretary Janet Yellen meanwhile greeted the agreement as a “historic day” for economic diplomacy.
“For decades, the United States 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 said.
“No nation has won this race. Lower tax rates have not only failed to attract new businesses, they have also deprived countries of funding for important investments like infrastructure, education, and efforts to combat the pandemic,” Yellen said.
International corporations have come under growing criticism for using legal means to shift profits around the globe in order to pay as little tax as possible.
Another frequent bone of contention is that many companies, especially US tech giants like Amazon and Google, pay too little tax in countries where they are active.