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The agreement of a deal by 136 countries to enforce a corporate tax rate of at least 15% by 2023 is seen as a major step toward addressing the issue of tax avoidance by U.S. tech giants, among others.
The focus will now be on whether the deal, which was announced by the Organization for Economic Cooperation and Development on Friday, can be implemented by the deadline, as domestic procedures will first have to be completed by the governments of each country.
Some estimates indicate that if the global minimum tax rate was 15%, tax revenue from Japanese companies with overseas subsidiaries would increase by €6 billion (about ¥780 billion).
“I strongly welcome the realization of this historic agreement,” Finance Minister Shunichi Suzuki said in a statement.
To help boost the growth potential of firms, Japan has gradually lowered its effective corporate tax rate since the inauguration of the second Abe Cabinet in late 2012, from nearly 40% to 29% in fiscal 2016.
However, amid a worsening financial climate, there have been concerns that Japan could get caught up in the global race to lower corporate tax rates.
U.S. President Joe Biden stressed Friday the significance of setting a minimum global corporate tax rate of at least 15%, saying that it would eliminate the incentive to move jobs and profits overseas.
“[The agreement] demonstrates the importance of working together to achieve positive outcomes for the world,” said Paschal Donohoe, the finance minister of Ireland, which has attracted multinational companies with its low tax rate.
Before countries implement the proposed digital taxation and corporate tax rates, lawmakers in each nation will have to deliberate the rules, and legal revisions may be required.
France, Britain and other countries that have their own digital taxation rules will have to scrap them before they can adopt the new rules.
In the United States, which has been a flag-bearer for the new rules, there are indications that congressional approval will be difficult to obtain as the issue is expected to become a political battleground between the ruling and opposition parties.
OECD Secretary General Mathias Cormann called for swift action to implement the agreement, which he said was a major victory for multilateralism.
