The Organization for Economic Cooperation and Development (OECD) has announced that 136 countries have agreed on a deal to ensure big companies pay a minimum tax rate of 15 percent from 2023.
After four years of negotiations, Estonia, Hungary, and Ireland signed on to the agreement, which is now supported by all OECD and G20 countries. The OECD said four countries including Kenya, Nigeria, Pakistan and Sri Lanka had not joined the agreement.
According to OECD, the minimum rate accord will see countries collect around $150 billion in new revenues annually, while $125 billion in multinationals’ profits will be re-allocated to the countries in which they operate.
Mathias Cormann Secretary-General OECD
“The agreement will make our international tax arrangements fairer and work better. This is a major victory for effective and balanced multilateralism. It is a far-reaching agreement that ensures our international tax system is fit for purpose in a digitalized and globalized world economy. We must now work swiftly and diligently to ensure the effective implementation of this major reform.”
The deal provides a tax minimum for countries that seek to attract investments and jobs by paying low taxes to multinational companies. The tax floor also makes it tough for multinationals, especially US tech giants, to avoid taxation. The new minimum tax rate will apply to companies with revenue above $868 million.
The OECD said the agreement will ensure a fairer distribution of profits and taxing rights among countries for the largest and most profitable multinationals. It will reallocate some taxing rights over large corporations from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there.
