Big Corporations Will Have to Pay Global Minimum Corporate Tax of 15%

Big corporations will have to pay a minimum tax rate of 15 percent, according to a deal made by 136 countries, the Organisation for Economic Cooperation and Development (OECD) stated.

The countries that took part accounted for about 90 percent of the global economy. However, Pakistan, Kenya, Nigeria, and Sri Lanka have not signed the pact yet.

This minimum tax rate would apply to multinational firms that made $868 million in sales globally.

Individual governments can still determine the local corporate tax they want to set, but if a company operating in another country pays lower rates, the government of that country can raise its taxes to 15 percent.

This measure aims to prevent multinational companies from evading taxes and shifting profits. Often, large corporations shift their capital and profits to low-income countries to avoid paying high taxes.

The deal also involves allowing governments to tax 25 percent of the largest multinationals’ excess profit, which is profit in excess of 10 percent of revenue.

The OECD said that it estimates that the measure will generate $150 billion in additional global tax revenues per year.

In addition, it is expected that the minimum tax rate will propel multinational companies to shift capital back to their home countries, which will boost the economy of those countries.

Now that the countries have agreed on the technical details of the plan, the next step is for the finance ministers of the Group of 20 (G20) to formally approve the deal. This would then allow the G20 leaders to discuss and endorse the deal at an upcoming summit scheduled to be held at the end of October.

The timeline of the deal specifies that it should be formalized into law in 2022 so that it can take effect by 2023.