The most ambitious tax reform in a century faced another setback on Monday when the Organization for Economic Co-operation and Development, which oversees global negotiations, said proposed rules on how the world’s largest companies would be taxed would not come into effect until in the middle of next year.
The delay is expected to push the entry into force of the agreement, which was planned for next year, to at least 2024. That will give negotiators more time to work out a jumble of intricate details about how to rewrite international tax treaties and set a global minimum. tax of 15 percent in more than 130 countries.
But it could also give governments more time to consider withdrawing from the pact as fears of inflation and a global recession mount and many countries, including the United States, face elections.
“It is important to strike a balance between the political interest in rapid implementation and the need to properly complete the design of innovative new rules, which are intended to last for decades,” wrote Mathias Cormann, the Secretary-General of the OECD, in a report to the finance ministers of the Group of 20 countries, who will meet in Indonesia this week.
The tax deal, signed last October, aims to significantly raise taxes for many large companies and end an international battle over how technology companies are taxed. The architects said it would end the global “race to the bottom” for corporate tax rates.
The two-pronged approach involves countries introducing a minimum tax of 15 percent, so that companies pay a rate of at least that amount on their global profits, regardless of where they locate. It would also allow governments to tax the largest and most profitable companies in the world based on where their goods and services are sold rather than where they are located.
Both parts of the agreement have stalled.
The OECD’s delay is related to the challenges negotiators have faced in figuring out how to redistribute taxing rights between countries.
“We will continue to work as quickly as possible to complete this work, but we will also take as much time as necessary to get the rules right,” Mr Cormann said in a statement. “These rules will shape our international tax regimes for decades to come. It’s important to get them right.”
The introduction of the global minimum tax has faced obstacles in the United States and Europe.
Hungary is blocking the European Union, which needs unanimous support from its members, from introducing the 15 percent minimum tax. Earlier, Poland temporarily withdrew its support for the deal.
In the United States, the Biden administration planned to implement tax changes through a sweeping climate and economic package that Democrats had hoped to push through party lines last year. But that proposal has largely collapsed, and the Treasury Department is instead hoping that the changes necessary to bring the United States into line with the deal will be incorporated into a narrower spending bill that Democrats hope to pass this summer.
The Treasury Department said Monday it supported the OECD’s slowdown and did not see it as a setback.
“Treasury welcomes the extra year agreed at the OECD to allow more time for government negotiations and consultation with stakeholders,” said Michael Kikukawa, a spokesman for the Ministry of Finance, adding: “Huge progress has been made And additional time will ensure we all get this historic agreement right.”