The European Union is suspending its plans to tax online tech giants in the face of global efforts to agree on a minimum tax rate of 15% for companies.
Earlier this week, G20 finance ministers agreed to support the global effort that will now be presented to G20 leaders in October.
The announcement coincided with U.S. Treasury Secretary Janet Yellen’s visit to Brussels, where she urged all 27 EU countries to join the global agreement.
Despite the agreement of most EU member nations, Ireland said it would maintain its lower tax rate of only 12.5%.
Governments have long struggled with the issue of taxing global companies operating in many countries – a challenge that has grown with the ubiquity of big tech groups like Amazon and Facebook.
Efforts in Britain and the EU to tax the online giants have led to tensions with the U.S., which feels it is being treated unfairly.
Yet there is broad support for a plan to make multinationals pay their “fair share” of taxes around the world.
132 nations have signed the framework, but it needs ratification by their parliaments – including the U.S. Congress, where it faces Republican opposition.
Companies can currently set up local offices in countries with relatively low corporate tax rates and declare profits there.
That is, they pay only the local tax rate, even if the profits come mostly from sales elsewhere.
The new agreement aims to prevent this in two ways.
Firstly, it aims to make companies pay more tax in the countries where they sell their products or services, rather than where they declare their profits.
Second, a global minimum tax rate would help prevent countries from undercutting each other through low tax rates.
Not everyone is enthusiastic about this new deal.
In addition to Ireland, Hungary and Estonia are also opposed to plans to make rates uniform in general.
For more information, read the original story in the BBC.