OECD deal imposes global minimum corporate tax of 15%
Accord signed by 136 countries will enable them to raise tax on sales made by multinationals within their borders
Last modified on Fri 8 Oct 2021 15.07 EDT
Almost 140 countries have taken a decisive step towards forcing the world’s biggest companies to pay a fair share of tax, with plans for a global minimum corporate tax rate of 15% to be imposed by 2023.
The Organisation for Economic Co-operation and Development (OECD) said that 136 countries and jurisdictions had agreed to join an accord to impose a two-pillar global tax reform plan.
Describing the “landmark deal” as a significant milestone towards ending decades of countries undercutting their neighbours on tax, the Paris-based institution said 136 jurisdictions out of 140 taking part in negotiations had joined the agreement.
Holdouts from previous negotiating rounds, including Ireland, Hungary and Estonia, agreed to the latest plans, meaning that all 38 OECD member countries and the G20 group of the world’s most advanced economies would be part of the reforms. Four countries – Kenya, Nigeria, Pakistan and Sri Lanka – did not join the latest statement.
Under the landmark reforms, a new taxing right will be created enabling countries to levy a slice of the profits generated by a handful of the world’s biggest firms, based on the sales generated within each country’s borders.
The OECD said that more than $125bn (£92bn) of corporate profits from about 100 of the world’s largest and most profitable multinationals would be reallocated under the first pillar of the twin-pronged reforms.
The second pillar will set a global minimum tax rate at 15% on large companies. Although stating the plan would not eliminate tax competition, the agreement sets rules limiting a race to the bottom on tax. The OECD said it would collect an extra $150bn for governments around the world each year.
After a week of tense negotiations in Paris, the deal comes after Ireland dropped its resistance to the plan following the removal of the phrase “at least” from an earlier draft text, which had pledged a global minimum tax of “at least 15%”. Ireland sets a headline corporation tax rate of 12.5%.
Dublin agreed to join after receiving assurances from the EU that the rate would not be increased further down the line. The global tax floor will also only apply to the biggest firms, with annual revenues of €750m.
Despite representing significant progress following years of false starts, campaigners had argued more could have been done to ensure fair taxation of large firms based on their local sales.
Developing countries including Nigeria and Kenya had been reluctant to join the accord because of fears it would disproportionately advantage large economies, while leaving smaller nations without a fair claim on large company profits.
The agreement comes ahead of meetings taking place between G20 finance ministers in Washington next week, as well as a gathering of G7 finance ministers being chaired by Rishi Sunak on his first trip to the US since becoming UK chancellor.
Sunak said he was proud of the historic reforms, which had been agreed in principle at the G7 in London in June. “We now have a clear path to a fairer tax system, where large global players pay their fair share wherever they do business,” he said.
The OECD said countries involved in the deal would aim to sign a multilateral convention next year, with effective implementation of the tax reforms in 2023.
Mathias Cormann, the secretary general of the OECD, said the plan was a “major victory” for international cooperation. “It is a far-reaching agreement which ensures our international tax system is fit for purpose in a digitalised and globalised world economy. We must now work swiftly and diligently to ensure the effective implementation of this major reform.”
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