130 countries, including China, India and Turkey were in support of introducing a minimal global corporation tax at the conference held by the Organization for Economic Co-operation and Development Financial. Only nine, in an economical point of view, smaller countries, amongst them Hungary, did not sign the current draft of the agreement.
It is easier to picture the end of the world than the end of capitalism – think a large portion of those who believe it to be evident that burden-sharing is a must for a sustainable international co-operating economy. Because of the economic stimulus package, provided at times of crisis, the sovereign debt rose. The burden of this debt should be divided equally between the participants of the economy. A step made in this direction would be to introduce a minimum of 15 percent global corporation tax. On Thursday, a breakthrough was made regarding this matter – at the conference held by the Organization for Economic Co-operation and Development (OECD) most countries, 130 to be exact, among them China, India, and Turkey, supported the proposal. Nine countries, however, did not sign the agreement in its current form. Most importantly, Hungary, Ireland, and Estonia, three European Union countries, were among those nine. In theory, any of these countries could prevent the group of 27 from going through with the plan. It is also worth mentioning how besides the three European union countries not only Peru, Barbados, Saint Vincent and Grenadines, Sri Lanka, Nigeria, and Kenya disagreed, but also tax havens like Bermuda, Cayman Islands and the Brit Virgin Islands.
The aim of this agreement would be to target those multinational corporations that have an annual turnover which exceeds 750 million euros. Contrary to the current form of taxation, depending on the source of profit, a minimum of 15 percent tax would be raised, which in turn would prevent its profit from being placed into a tax haven.
According to the OECD, the new taxation system, besides the 150-milliard dollars of tax revenue that is expected as a result, the tax revenue would be distributed more justly between those countries where the profit used to be increased. The global corporate tax does not make it mandatory that every country applies the minimum of 15 percent, but other countries can request a substitute tax on the income of corporations in countries with a lower VAT rate. Joe Biden, president of the United States, accentuated in a statement that following the introduction of the minimal global taxation, the multinational corporations will not be able to pit countries against each other with the intention of lowering the VAT rate.
Further details of the agreement will be elaborated on by the G20 group containing the world’s biggest economies, in Venice at next week’s conference. The aim is for the agreement to be finalized in October’s business meeting of the OECD and, for the new rules to be introduced in 2023.
Hungary would stay out
Hungary refused the introduction of global minimal taxing on account of not wanting to damage the country’s contestability along with saying that this new development would lead to tax increase. Mihály Varga, minister of finance, however, mentioned that he is on board with honest tax competition and the taxing of digital companies as long as doing so does not cause harm for real corporations performing economic activities.