The OECD announced on Thursday that 130 nations have agreed on global tax reform to ensure that multinational corporations pay their fair share wherever they operate, but several EU governments have refused to sign on.
Global corporations, including US behemoths Google, Amazon, Facebook, and Apple, would be taxed at a rate of at least 15% once the deal is implemented, according to the Organization for Economic Cooperation and Development.
When the new tax scheme takes effect in 2023, the OECD estimates that it will add $150 billion to government budgets around the world.
The OECD stated that "The framework updates key elements of the century-old international tax system, which is no longer fit for purpose in a globalized and digitalized 21st-century economy,"
Following the G7 group of affluent nations' approval last month, negotiations will now go to the G20 group of developed and emerging economies' meeting on July 9-10 in Venice, Italy.
The current agreement, according to US President Joe Biden, "puts us in striking distance of full global agreement to halt the race to the bottom for corporate taxes."
Another supporter of the tax reform, Germany, called it a "colossal step towards tax justice," while France called it "the most important tax agreement in a century."
"The fact that 130 countries across the world, including all of the G20, are now on board, marks a further step in our mission to reform global tax," said British finance minister Rishi Sunak, whose country now holds the G7 leadership.
'It's in everyone's best interests'
Low-tax EU countries Ireland and Hungary, meanwhile, have refused to sign on to the OECD pact, highlighting remaining differences on global taxes, according to the group.
Both countries are members of a group of EU countries that have relied on low tax rates to recruit multinationals and grow their economies, including Luxembourg and Poland.
Ireland, the EU country where Facebook, Google, and Apple are headquartered, has a corporation tax rate of just 12.5 percent.
The new laws, according to Irish Finance Minister Paschal Donohoe, could cost Ireland 20% of its business revenue.
Donohoe said on Thursday that Ireland still "broadly supports" the agreement, but not the 15% tax level.
"There is much to finalize before a comprehensive agreement is reached," he said, adding that Ireland would "constructively engage" in further talks.
Switzerland, which is known for its financial secrecy restrictions, expressed alarm as well, saying it would accept the measures despite "major reservations" and that it hoped the interests of "small, innovative countries" would be considered.
The plan's execution is scheduled to begin in October.
The agreement has yet to be signed by nine of the 139 participants in the negotiations.
However, China, whose attitude was keenly scrutinized as it grants tax breaks to vital industries, backed the pact.
"It is in everyone's interest that we reach a final agreement among all Inclusive Framework Members as scheduled later this year," OECD Secretary-General Mathias Cormann stated.
"This package does not eliminate tax competition, as it should not, but it does set multilaterally agreed limitations on it," Cormann said, adding that "it also accommodates the various interests across the negotiating table, including those of small economies and developing jurisdictions."
A global economy that is "more equitable"
A minimal tax, according to finance ministers, is vital to prevent countries from competing over who can offer multinationals the lowest rate.
A worldwide tax pact will help sustain US competitiveness, according to Biden, who has proposed raising domestic business taxes to pay for a $2 trillion infrastructure and employment package.
Biden praised the bill as an "important step in moving the global economy forward to be more equitable for workers and middle-class families in the United States and around the world." despite the fact that his tax plans could face opposition in Congress.
He pointed out that the countries who signed up an account for more than 90% of the global GDP.
The package "will provide much-needed support to governments needing to raise necessary revenues" to correct their budgets and invest in steps to support the post-COVID recovery, according to an OECD statement.
Meanwhile, Oxfam, a humanitarian organization, claimed the agreement fell short of the tax level required to ensure that poorer nations receive a sufficient share of increased tax money.
Oxfam said signatories had missed a "skewed-to-the-rich and completely unfair," calling the agreement "once-in-a-lifetime opportunity to build a profoundly more equal world."
