Global deal to ensure companies pay at least 15% tax agreed by 136 nations

·3-min read
The move was welcomed by Facebook, although some large developing countries did not sign up  (Getty/iStock)
The move was welcomed by Facebook, although some large developing countries did not sign up (Getty/iStock)

More than 130 countries have agreed to a global deal aimed at deterring large multinational companies from moving their profits to tax havens.

The deal includes a global minimum corporate tax rate of 15 per cent and rules to force large companies with high profit margins to pay more in the countries where they earn money.

The OECD, which hosted the talks, said the minimum rate could raise $150bn (£110bn) worldwide. The deal was agreed by 136 countries, including Ireland, Hungary and Estonia, which have low corporate tax rates and had been resisting.

But the deal faces several hurdles before it can take effect. The US is debating related tax legislation proposed by Joe Biden that some in Congress fear could make American rates uncompetitive. A rejection by Congress would cast uncertainty over the entire project.

Signatory countries agreed to a two-year ban on imposing new taxes on tech giants while the deal goes to Congress. The US had threatened sanctions against countries including the UK and France over digital services taxes designed to raise more money from tech giants.

The minimum corporate tax rate would come in from 2023. The other part of the deal would allow countries to tax a portion of the profits earned in their jurisdiction by large companies regardless of whether they have a physical presence there.

This provision would affect around 100 global firms. The OECD said more than $125bn (£92bn) in profits would be reallocated under the provision.

Nigeria, Pakistan, Sri Lanka and Kenya have not signed the agreement. Anti-poverty and tax fairness advocates have said developing countries stand to benefit less from the deal than wealthy countries.

The G24 group of developing countries said that without a bigger share of revenue from reallocated profits, the deal would be “sub-optimal” and “not sustainable even in the short-run”. But the OECD said developing countries stand to make greater revenue gains from reallocation than richer countries.

The deal is expected to be finalised by G20 finance ministers next week, and then by G20 leaders at a summit in Rome at the end of October.

Negotiations over the deal have been ongoing for years. Countries have grown more concerned with offshore tax avoidance over the past decade or so and a global consensus was seen as the most effective way of tackling the practice.

Leaders and finance ministers have welcomed the deal. Mr Biden, who strongly backed the proposal, said: “For decades, American workers and taxpayers have paid the price for a tax system that has rewarded multinational corporations for shipping jobs and profits overseas.

“This race to the bottom hasn't just harmed American workers, it's put many of our allies at a competitive disadvantage as well.”

UK chancellor Rishi Sunak said: “We now have a clear path to a fairer tax system, where large global players pay their fair share wherever they do business.”

Ursula von der Leyen, president of the European Commission, said countries owed it to their citizens to ensure tax was paid more fairly: “I look forward to the G20 Summit at the end of the month, where we will finalise the details of this agreement.”

Tech giant Facebook also welcome the deal. Nick Clegg, vice president of global affairs, said: “Facebook has long called for reform of the global tax rules, and we recognise this could mean paying more tax, and in different places.”

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