Nine Countries Reject Global Minimum Tax Deal, Sending It Down Rocky Road to Completion

Guests arrive at the OECD headquarters in Paris, France, on Nov. 27, 2013. (Antoine Antoniol/Getty Images)

Nine countries have refused to sign onto an international tax reform framework that includes a 15 percent global minimum corporate tax pushed by the Biden administration as a way to reduce international tax arbitrage by U.S. multinationals and blunt the impact of President Joe Biden’s proposed domestic corporate tax hike.

While officials from 130 out of 139 countries in the so-called OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting agreed last week to establish the new framework, Ireland, Estonia, Hungary, Peru, Barbados, Saint Vincent and the Grenadines, Sri Lanka, Nigeria, and Kenya did not sign the agreement.

Irish Finance Minister Paschal Donohoe, whose country has attracted many big U.S. tech firms with its 12.5 percent corporate tax rate, said he would not join the other signatories but would still try to find an outcome he could back.

“I was not in a position to join the consensus on the agreement and specifically a global minimum effective tax rate of ‘at least 15 percent’ today,” Donohoe said. “I have expressed Ireland’s reservation, but remain committed to the process and aim to find an outcome that Ireland can yet support.”

Mihaly Varga, the finance minister of Hungary, which has a 9 percent corporate tax rate, dismissed the 15 percent rate as “too high.”

“The global minimum tax would obstruct economic growth, the planned 15 percent tax rate is too high, and it shouldn’t be levied on real economic activity,” Varga said in a statement on Friday, though he added that Hungary would continue to negotiate.

The two-pillar framework—the outcome of negotiations coordinated by the Organisation for Economic Cooperation and Development (OECD) for much of the last decade—aims to force large Multinational Enterprises (MNEs) to pay tax where they operate and earn profits, while seeking to end a race to the bottom on international corporate tax rates.

Pillar one would reallocate taxing rights on more than $100 billion of MNE profits per year from their home countries to the markets where they have business activities and earn profits, regardless of whether the firms have a physical presence there.

Pillar two, with its global minimum corporate income tax rate of at least 15 percent, is estimated to generate around $150 billion in additional global tax revenues per year.

The Biden administration’s appeal for international cooperation on the global corporate minimum tax rate is a bid to at least partially counteract any disadvantages that might arise from the president’s proposal to raise the U.S. corporate tax rate to 28 percent, a move panned by Republicans and business groups as hurting the competitiveness of U.S. companies and slowing wage growth.

Treasury Secretary Janet Yellen testifies before a Senate Appropriations Subcommittee hearing in Washington, on June 23, 2021. (Greg Nash/Pool via AP)

The new rules emerging from the pact are tentatively scheduled to take effect in 2023, but for that to happen, countries must hammer out remaining details by October so tax codes can be revised next year. Some signatories, including India and Switzerland, have since expressed reservations. That suggests a 2023 implementation could be optimistic, given that many countries took years to ratify an earlier, less far-reaching amendment to international tax treaties.

An added complication comes in the form of European holdouts Estonia, Hungary, and Ireland, as European Union law would be the vehicle for enforcing the rules in the world’s biggest trading bloc, and that would require unanimous backing by all 27 EU member states.

Biden called the agreement 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.”

“With a global minimum tax in place, multinational corporations will no longer be able to pit countries against one another in a bid to push tax rates down and protect their profits at the expense of public revenue. They will no longer be able to avoid paying their fair share by hiding profits generated in the United States, or any other country, in lower-tax jurisdictions,” Biden said in a statement.

“This will level the playing field and make America more competitive. And it will allow us to devote the additional revenue we raise to making generational investments, which are necessary to keep America’s competitive edge razor sharp in today’s global economy,” he added.

Meanwhile, Treasury Secretary Janet Yellen is expected to press G20 counterparts this week for a global minimum corporate tax rate above the 15 percent floor agreed by the 130 countries last week, but a rate decision is not expected until future phases of negotiations, Treasury officials said on Tuesday.

The deal is widely expected to be endorsed by G20 finance leaders when they meet on Friday and Saturday in Venice, Italy.

Reuters contributed to this report.