TheCable

The Organisation for Economic Co-operation and Development (OECD) says 130 countries have agreed on a minimum 15 percent global tax rate on large multinational enterprises (MNEs). 

MNEs are companies with a global turnover above 20 billion euros and profitability above 10 percent (i.e. profit before tax/revenue).

In a statement on Thursday, the OECD said the agreement by 130 countries represents more than 90 percent of global GDP.

Earlier in June, Group of Seven (G7) countries had backed a global minimum tax of at least 15% as part of a broader push by Joe Biden’s administration to create a “fair and inclusive” international economy.

The new global taxation rate will ensure that large corporations pay a fair share of tax wherever they operate and earn profits to keep such firms from dodging taxes by shifting their profits to countries with low rates.

“Pillar One will ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies,” the international organisation said in a document. 

“It would re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there.

“Pillar Two seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases.

“The two-pillar package will provide much-needed support to governments needing to raise necessary revenues to repair their budgets and their balance sheets while investing in essential public services, infrastructure and the measures necessary to help optimise the strength and the quality of the post-COVID recovery.”

Janet Yellen, US treasury secretary, said, “Today is an historic day for economic diplomacy. Lower tax rates have not only failed to attract new businesses, they have also deprived countries of funding for important investments like infrastructure, education, and efforts to combat the pandemic.”

“President Biden has spoken about a “foreign policy for the middle class,” and today’s agreement is what that looks like in practice”.

The implementation plan for the new deal is expected to be finalised in October 2021.