Multinational corporations will face a tougher time trying to ship profits overseas to dodge their fair share of taxes under new plans to implement a global corporate tax floor.

After two days of negotiations led by the Organisation for Economic Cooperation and Development (OECD), 136 nations agreed to impose a 15% minimum corporate tax rate on businesses with annual sales over US$868 million.

Under the terms of the agreements, individual member nations will still be able to set their own corporate tax rates, but where those rates fall below 15% other countries will have the right to apply a ‘top-up levy’ to that minimum on income a company earns from countries with lower rates.

Although some developing nations pushing for a higher minimum rate argued their needs were being pushed aside to accommodate those of wealthier OECD countries, only four nations remain hold-outs at the end of negotiations.

Those countries include Pakistan, Sri Lanka, Nigeria and Kenya. Even so, the 136 nations that did agree to the deal account for more than 90% of the global economy, the OECD said.

Stamping out havens

Following the pandemic, global leaders are eager to stop businesses shipping profits booked in one country off-shore to take advantage of lower tax rates in so-called ‘tax havens’ like Bermuda or the Cayman Islands.,

By eliminating these tax rate discrepancies, the 136 countries that have signed onto the deal expect to curb this behaviour and bring in an additional US$150 billion in annual tax revenues globally.

US Treasury Secretary and former Federal Reserve chair Janet Yellen said the minimum tax rate will end the “race to the bottom” mentality that has shaped corporate tax rates for the past three decades.

OECD Secretary-General Mathias Cormann said the agreement would make taxes “fairer and work better” across the world.

“This is a major victory for effective and balanced multilateralism,” he said.

Sources:

• Reuters: Explainer: What is the global minimum tax deal and what will it mean?
• Reuters: 130 countries back global minimum corporate tax of 15%
• DailyFT: Global tax deal seeks to end havens, criticised for ‘no teeth’
• Britannica: Janet Yellen
• ABC News: More than 100 countries reach global deal for 15 per cent minimum corporate tax rate. What will it mean?