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Global corporate tax pact in jeopardy

Liz Truss during a hustings event in Perth, Scotland yesterday as part of the campaign to be leader of the Conservative Party and the next prime minister. (Jane Barlow/PA via AP)

The measure US president Joe Biden signed into law yesterday that raises taxes on US corporations does nothing to comply with a separately negotiated 137-country deal for a global minimum tax on the world's largest companies.

It is the latest sign that the plan, once thought to be a sure-fire global agreement, is in difficulty.

This comes on the heels of the measure’s trouble getting pass senior British legislators, who may be participants in the next British government.

The Telegraph is reporting that Liz Truss, who may lead the next government, could pull Britain out after two of her most prominent supporters criticised the agreement.

Jacob Rees-Mogg, the Brexit opportunities minister, said the tax pact would work against British interests.

He told The Telegraph: "Tax sovereignty is one of the most important policies for any nation. The United Kingdom should not be part of a global corporation tax stitch-up which works against British interests."

But even in Europe, where the OECD pushed the proposal on to the global stage, agreement has proved elusive.

Earlier Poland, but now at least Hungary, has withdrawn consent in a forum that demands unanimity, as opposed to consensus.

The attempt to bring to heel multinational corporations that take every advantage of the world's uneven corporate tax laws, led to extraordinary unison last October, exhibited by 137 country leaders aimed at global tax reform.

But that was before they each had to go home to their respective legislatures and win internal consensus for the plan.

A key to the agreement was an objective to eliminate the corporate practice of setting up subsidiaries in small, international financial centres.

But just ten months after the much ballyhooed international tax agreement, there are mounting doubts that the various countries will implement it in the foreseeable future.

Getting nearly 140 legislatures to agree to anything was always going to be difficult.

In the US, the required Bill never came out of the Senate in one piece, but only after the removal of the global corporate minimum tax agreement.

The rules of the agreement would force the largest multinationals to pay an effective tax rate of 15 per cent in their operating countries, tying tax obligations to jurisdictions in which sales were made.

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Published August 17, 2022 at 7:44 am (Updated August 17, 2022 at 7:44 am)

Global corporate tax pact in jeopardy

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