OECD countries backed up global tax agreement

Mexico, the United States, China, and in general the 20 most developed economies in the world participate in an agreement for global taxes.

In the digital economy, frontiers are meaningless. This fact allows global companies to operate in one country, sell to another and pay taxes in other different. Countries such as Ireland have taken advantage of the global economy offering corporations low and friendly taxation. However, most countries are failing to collect taxes. For that reason, the Organization for Economic Cooperation and Development (OECD) has been discussing an agreement to apply global taxes to multinational corporations.

The Organization for Economic Cooperation and Development (OECD) announced that 136 countries reached an agreement to apply a 15% tax on the profits of multinational companies starting in 2023, an effort that it intends to distribute tax revenue in times of economic digitization.

     Mexico, the United States, China, and in general the 20 most developed economies in the world participate in an agreement that was announced thanks to the fact that the last to join were Estonia, Hungary, and Ireland, the last two known to be lax in their taxation. OECD said in a statement that of the 140 associated countries and territories, only Kenya, Nigeria, Pakistan, and Sri Lanka are missing.

     “Today’s agreement will improve the functioning of our international tax agreements and make them fairer,” OECD Secretary-General Mathias Cormann wrote in the statement. “It represents a great victory that must be attributed to effective and balanced multilateralism. This ambitious agreement ensures that our international tax system adapts to the realities of today’s globalized and digital economy. Now we must act quickly to ensure the effective implementation of this far-reaching reform. “

GAFA is in the spotlight of new global tax policy

     This agreement arose from the need to limit the tax engineering that large companies have applied, such as Apple, the most influential technology company in the world, or Facebook, the social media giant, which to pay the least amount of taxes possible settle in countries like Ireland, to avoid increased taxation, when many governments struggle to collect taxes if the services offered are consumed in their jurisdiction.

     Negotiations for a pact, whose implication has a scope of jurisdictions that reach 90% of the world’s gross domestic product, were simmered. Just in mid-June, the finance ministers of the group of the seven largest economies in the world, the G7, said they would agree to the deal.

Mexico is already collecting taxes from digital services

     The government of Mexico, for its part, was already seeking to withhold the value-added tax (VAT) from companies such as Uber, Netflix or Spotify, which in the country have one of its largest markets, so from 2020, it began to collect it.

     OECD says that the tax agreement will allow reallocating 125 billion dollars of profits in a hundred transnational companies. The solution agreed by the 136 signatories is based on two pillars that will be presented before the meeting of G20 finance ministers in Washington, United States, and the summit of G20 leaders to be held in Rome, Italy, both to be held in October.

     “The objective of the global minimum tax agreement is not to end tax competition, but to establish multilaterally agreed limits,” said OECD, in addition to ensuring that “it will allow countries to generate approximately 150 billion dollars in additional revenue each year.”.

     The first pillar of the agreement is the distribution among the signatory countries of the profits and tax rights of transnational companies with a global turnover of more than 20 billion euros and profitability of more than 10%. According to the OECD, the percentage that is reallocated will benefit developing economies.

     The second pillar implies a minimum corporate tax worldwide, says the OECD, for which the rate was set at 15% for companies with a turnover of at least 750 million euros.

     For some, this agreement may not be enough and the collection it can generate is limited compared to what they stop paying annually. Economist Joseph Stiglitz said three months ago that the deal that was being forged ran that risk of not addressing the fine points.

     “An initiative that began as an attempt to force multinationals to pay their taxes could generate considerably limited additional revenue, well below the $ 240 billion unpaid annually,” Stiglitz wrote in an article. published in El País. “Avoiding it depends not only on preventing a global downward convergence but also on ensuring a broad and complete definition of what business profits are. . . Probably, the best thing would be to agree on a standard accounting ”.

Not all countries are happy

However, not all countries in OECD are happy with the initiative, such as Hungary, Ireland, and Estonia. In the case of Ireland, the benefits have helped it convince some of the world’s largest multinationals to employ one in eight workers in the country.