The OECD has admitted that its groundbreaking international deal to increase the amount of tax paid by multinationals is falling significantly behind schedule and has no hope of being implemented next year.
Speaking at the World Economic Forum in Davos, Mathias Cormann, the OECD secretary-general, said there were “difficult discussions under way” and that the landmark agreement, which would ensure multinationals paid more tax where they made their sales, would come into force in 2024 at the earliest.
The deal, inked in October 2021, was originally set for implementation in 2023. But it has come under fire in the US from Republicans in Congress, and European unanimity on the subject has also frayed. An Ecofin meeting of eurozone finance ministers was set to discuss the agreement on Tuesday, but Poland’s reluctance to back the deal has delayed progress and discussion was pulled from the agenda.
Bruno Le Maire, the French finance minister, told reporters in Brussels on Tuesday that he was now aiming to strike a deal on the implementation of the minimum corporate tax rate in the EU at the next meeting of the Ecofin on June 17.
The first pillar of the two-part deal overturns 100 years of corporate tax rules and requires an international treaty to come into force. If passed, it would ensure US tech giants paid more of their tax in other countries.
For the treaty to be ready in time, all signatories would now need to be close to a consensus and willing to change their national tax rule books. Cormann admitted this lack of consensus meant that, instead of the full text of the deal being ready by the middle of this year, “that is now more likely to be by the end of this year”.
He added: “We deliberately set a very optimistic timeline for implementation to keep the pressure on and it has helped keep the momentum going. But I suspect it is probably most likely that we will end up with a practical implementation from 2024 onwards.”
The OECD secretary-general was more optimistic about the chances of the second pillar of the deal coming into force sooner. That second pillar in effect sets a minimum corporate tax rate of 15 per cent, with countries able to tax profits of their companies made abroad if those jurisdictions do not impose the minimum tax.
Some EU officials believe Poland is holding back its support for the tax because of broader political differences with Brussels, including over the European Commission’s refusal to sign off on Poland’s bid for its share of the EU’s €800bn recovery fund. Poland insists its concern is to ensure the minimum tax deal does not get split from the other pillar of the deal.
Warsaw and the commission are engaged in talks aimed at unlocking the Polish recovery fund bid, which has been stuck because of Brussels’s demands for reform commitments related to judicial independence in Poland.
Those close to the negotiations said the US was eager to begin implementation of the global minimum tax rate this year, with US Treasury secretary Janet Yellen pushing for this to take place before the US midterm elections in November. Yellen met the Polish prime minister, finance minister and central bank governor earlier this month to try and unlock talks. The minimum tax rate remains “a priority for both the EU and the US”, said a person with knowledge of the negotiations.
Le Maire said on Tuesday he would not spare any effort as he sought to convince Poland to take the last step and “join the consensus on minimum taxation”. He added: “We have been working for more than five years on this minimum taxation. I think it is a question of justice, of fairness, of efficiency of the international taxation system.”
The administration of US president Joe Biden, meanwhile, has faced difficulties in getting measures through Congress. Draft legislation which would bring the US in line with the OECD global minimum tax were included in the administration’s $1.75tn Build Back Better infrastructure bill, which passed the House of Representatives but has not cleared the Senate.
“Two years ago, an admission the first pillar was off track would have killed the second pillar,” said Dan Neidle, founder of Tax Policy Associates, a think-tank. “Widespread adoption of domestic minimum taxes means the benefits of the second pillar are now more widely shared.”
“I am not sure the first pillar is ever going to happen,” added Neidle.