The OECD has set a hard deadline of the middle of 2023 for an agreement on a crucial aspect of its global tax deal, in an effort to keep up the pressure on lawmakers to enshrine the proposals in law.
The proposals, which nations signed up to in the autumn of 2021, include a pillar that would require the largest multinationals to pay more tax in the countries where they make their profits.
OECD officials set a “hard deadline” of this time next year for an international treaty on ensuring the largest companies, including US tech giants, pay more corporate tax abroad and a smaller share in their home countries.
Having been previously optimistic, officials in Paris are now having doubts as to whether the US will ratify this element. The deadline is aimed at giving the new Congress, to be elected in the November midterms, one last chance.
The OECD secretariat on Monday published draft rules on how the proposal would work. The proposal ensures there is no double taxation of profits — key in reassuring the US that it will gain from the measure.
Some tax experts think that this will not be enough to persuade Congress to pass the necessary legislation, which needs a two-thirds majority in the Senate.
Dan Neidle, founder of the Tax Policy Associates think-tank, said ratification seemed fanciful. “The Senate has spent years blocking entirely innocuous treaty amendments,” he added.
Grant Wardell-Johnson, global tax policy leader at KPMG, said the likelihood of Congress ratifying this part of the agreement was “very hard to evaluate”, adding that there was at least another 12 months to find a political consensus.
Nick Blundell, a corporate tax partner at accountancy firm Moore Kingston Smith said political hurdles in both the UK, where a new prime minister is to be chosen in the autumn, and the US may prove “an intractable obstacle” to the plans.
The OECD is keen that any blame would fall on the US for the failure of this part of the overall package and has argued that the consequence would be a proliferation of domestic digital services taxes.
Allowing nations to implement separate measures would, according to Neidle, create a “web of different taxes” that did not have a coherent core around the world. The OECD has previously estimated that the cost of such measures — and the possibility of trade barriers in response — could knock 1 per cent off global GDP
The proposals were originally set to come into force in 2023.
OECD officials are more confident that the second pillar of the deal — which says that corporates must pay a global minimum rate of 15 per cent — can become law.
In a submission to finance ministers from the Group of 20 nations on Monday, Mathias Cormann, secretary-general of the Paris-based international organisation, said that countries were making strong progress and that Hungary’s decision to block an EU directive on the matter could be overcome as other member states were pressing ahead with alternative mechanisms.
“In spite of some delays in reaching agreement . . . implementation of the global minimum corporate tax seems ineluctable,” Cormann wrote. The OECD expects the 15 per cent minimum rate to come into force in 2024.
Once in force, the minimum rate would raise corporate tax revenues, especially in large advanced economies that had previously suffered from companies redirecting profits to tax havens.