Brussels (Brussels Morning) G20 finance ministers, a group which represents some 85% of the global economy, has endorsed the global tax reform plan agreed to earlier this month by the Organisation for Economic Co-operation and Development (OECD).
The framework for the global tax overhaul was signed by more than 130 OECD member states. Saturday’s affirmation by the G20 demonstrates that the world’s 19 richest economies and the European Union are willing to make sure the plan becomes a reality within the next few years.
The global tax reform is intended to stop giant multinational companies from avoiding taxes by shifting profits from major economies into tax havens via the use of holding companies and franchise and intellectual property fees.
The reform would introduce a global minimum corporate tax of 15%, preventing a “race to the bottom” by countries seeking to attract multinational holding companies by using the lure of low corporate taxes. A second pillar of the reform would aim to ensure that companies pay taxes on profits in the country in which they were earned.
According to OECD estimates, the measure would affect less than 10,000 major companies in all. However, it would force them to pay around 150 billion dollars more in taxes globally. At its rollout, the tax reform is planned to apply solely to around 100 top multinational companies, such as technology giants and oil companies.
However, not all OECD countries are aboard — nor are all EU member states. Estonia, Hungary and Ireland oppose the measure as countries that have so far profited from lower corporate tax rates. Ireland, in particular, has succeeded in attracting most global tech companies to report their EU earnings through subsidiaries headquartered in Dublin, a system that enables them to avoid the bulk of taxes they would have had to pay were their offices located elsewhere in the EU.
Final agreement on the tax reform is not expected before the G20 leaders’ summit in Rome, scheduled for October. The earliest date the new tax could be implemented would be sometime in 2023.
