Over 130 countries reach global tax deal
By ECCT staff writers
More than 130 countries have signed up to a ground-breaking global agreement on corporate tax reform aimed at eliminating tax havens while bringing in US$150 billion more a year from multinational corporations (MNCs).
The 136 nations also agreed to a two-year ban on imposing new taxes on tech groups such as Google and Amazon while the Biden administration tries to ratify the deal in the US.
The agreement, orchestrated by the OECD, includes a 15% global minimum effective corporate tax rate, as well as new rules to force the world’s MNCs to declare profits and pay more in the countries where they do business. This will give countries greater scope to tax multinational companies operating within their borders, even if they don't have a physical presence there.
The move will affect firms like Amazon, Google and Facebook with global sales above €20 billion and profit margins above 10%. Companies with turnover exceeding €20 billion will be required to allocate 25% of their profits in excess of a 10% margin to the countries where they operate, based on their sales. The 10% profit margin will be calculated using an averaging mechanism, based on profit before tax.
Other areas of the deal contained concessions enabling all G20 and EU countries to sign up to the minimum 15% corporate tax rate.
Hungary secured a longer transition period for the “substance-based carve-out”, allowing it to offer a low rate of tax for tangible investments in its jurisdiction, such as car plants, for 10 years.
China also succeeded in having a clause inserted that will limit the effect of the global minimum tax on companies who are starting to expand internationally, because of concerns that its growing domestic companies would be clipped by the measures.