New digital taxes on hold for two years after corporate tax agreement

New digital taxes on hold for two years after corporate tax agreement

New digital taxes on tech groups such as Amazon and Google are on hold because of a new agreement on a 15% global corporate tax rate.

The agreement, between 136 countries, is aimed at elimating tax havens, but will see a two-year ban on imposing new taxes while the Biden administration tries to ratify the deal in the US, reported the Financial Times

It has been orchestrated by the Organisation for Economic Co-operation & Development (OECD) and includes a 15% global minimum effective corporate tax rate, plus new rules to force the world’s multinationals to declare profits and pay more in the countries where they do business. Tech giants such as Amazon, Google and Facebook with global sales above €20bn (£17bn) and profit margins above 10% are expected to be hit by the new rate.

The FT reported that the number of nations prepared to sign up to the agreement fluctuated over the weekend, with India, China and Brazil reluctant signatories. Sri Lanka, Pakistan, Nigeria and Kenya held out, complaining about the lack of revenue they stand to make from the deal. 

UK Chancellor Rishi Sunak said the deal would "upgrade the global tax system for the modern age". He said "We now have a clear path to a fairer tax system, where large global players pay their fair share wherever they do business."

In the US, Treasury secretary Janet Yellen urged congress to "swiftly" enact the proposals using the reconciliation process which allows bills to pass the Senate with a simple majority. If Congress fails to implement the deal, there are concerns other countries may go ahead with their digital taxes, sparking trade disputes with the US.

However, the new deal specifies “no newly enacted digital services taxes or other relevant similar measures will be imposed on any company from 8th October 2021” for two years, giving the US time to ratify the agreement. 

Mathias Cormann, the OECD secretary-general, said the deal would make the international corporate tax system “fairer and work better” but acknowledged the difficulties in getting the agreement put into law, and urged countries to “work swiftly and diligently to ensure the effective implementation of this major reform”.

Amazon declined to comment on the agreement.