The most ambitious tax reform in a century faced a new 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 be given to know until the middle of next year
The delay is expected to prompt final enactment of the deal, which was scheduled to kick in next year, until at least 2024. That will give negotiators more time to sift through a thicket of complicated details on how to rewrite international tax treaties and enact a global minimum tax of 15 percent in more than 130 countries.
But it could also give governments more time to contemplate withdrawing from the pact as fears about inflation and a global recession intensify and as many countries, including the United States, face elections.
“It is important to balance the political interest in rapid implementation with the need to properly finalize the design of innovative new rules intended to last for decades,” Mathias Cormann, OECD Secretary-General, wrote in a report to the Group’s finance ministers. of 20 nations that will meet in Indonesia later this week.
The tax agreement that was signed last October aims to raise taxes substantially on many large corporations and end an international fight over how technology companies are taxed. Its architects said it would end the global “race to the bottom” over corporate tax rates.
The two-pronged approach involves countries enacting a minimum 15 percent tax for companies to pay a rate of at least that amount on their global profits, no matter where they are based. It would also allow governments to tax the world’s largest and most profitable companies based on where their goods and services are sold rather than based on their headquarters.
Both sides of the deal have stalled.
The delay from the OECD is related to the challenges that negotiators have faced in figuring out how to reallocate tax rights between nations.
“We will continue to work as quickly as possible to get this work done, but we will also take as much time as necessary to get the rules right,” Cormann said in a statement. “These rules will shape our international tax arrangements for decades to come. It’s important to do it right.”
The enactment of the global minimum tax has faced obstacles in the United States and Europe.
Hungary is preventing the European Union, which needs the unanimous support of its members, from enacting the minimum 15 percent tax. That delay came after Poland temporarily withdrew its support for the deal.
In the United States, the Biden administration planned to enact fiscal changes through a sweeping climate and economic package that Democrats hoped to push along party lines last year. But that proposal has largely fallen apart, and instead the Treasury Department has been hoping that the changes needed for the United States to comply with the deal would be included in a more limited spending bill that Democrats hope to pass this week. summer.
The Treasury Department had no immediate comment on the latest delay.