Nearly all of the world’s countries and the entire European Union have signed an international agreement that would set a minimum corporate tax rate of 15% across the board.
The Organization for Economic Cooperation and Development announced the groundbreaking agreement on Friday and said that in total, 136 countries have agreed to the plan, including low-tax holdouts such as Ireland, Estonia, and Hungary. The countries in total make up more than 90% of the world’s gross domestic product.
“Today’s agreement will make our international tax arrangements fairer and work better,” said OECD Secretary-General Mathias Cormann. “This is a major victory for effective and balanced multilateralism.”
IRELAND SIGNS ONTO GLOBAL PLAN FOR MINIMUM CORPORATE TAX IN WIN FOR BIDEN ADMINISTRATION
Treasury Secretary Janet Yellen hailed the agreement as a means to ending the “race to the bottom” of corporate taxation. She and the Biden administration have knocked the global status quo because countries’ corporate tax rates have slid lower over time to compete with one another in an effort to attract business investment. Yellen sees the OECD treaty as critical to fair tax collection.
“Today’s agreement represents a once-in-a-generation accomplishment for economic diplomacy,” she said on Friday.
Estonia and Hungary were the last EU countries to ink the deal after Ireland, which has a corporate tax rate of 12.5%, decided to join this week.
Draft language in the treaty had specified that the rate would be set at “at least 15%,” but the Irish were able to negotiate with the OECD to drop the “at least” from the agreement’s terms in exchange for Ireland’s signature.
The support of three EU holdouts was key to implementing the new regime because all EU member states have to agree to tax reform proposals.
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The island nation of Barbados also signed the agreement. The only countries within the OECD framework that have not agreed to join are Kenya, Nigeria, and Sri Lanka.
The tax rate is intended to be effective from 2023.
