Western Government Leaders Agree To A 15% Minimum Corporate Tax Rate

A historic agreement has been struck by the majority of the world’s governments to guarantee that large corporations pay an equitable share of taxes.

A minimum corporation tax rate of 15% was agreed to by 136 nations, as well as a more equitable method of taxing earnings where they are made.

It comes as a result of concerns that multinational corporations are re-routing earnings to low-tax nations.

Ireland, for example, had previously rejected the agreement but has since consented to it.

The pact, according to UK Chancellor Rishi Sunak, would “improve the worldwide tax structure for the current era.”

“We now have a clear route to a fairer tax system,” he said, adding that “big global players pay their fair amount wherever they do business.”

For more than a decade, the Organization for Economic Cooperation and Development (OECD), an intergovernmental organization, has spearheaded discussions on a minimum rate.

It is estimated that the arrangement would bring in an additional $150 billion (£108 billion) in tax revenue every year, strengthening economies as they recover from Covid.

It also said that its goal was not to “abolish” tax rivalry between countries, but rather to “limit” it.

The corporation tax floor will be implemented in 2023. Countries will also have more leeway in taxing multinational corporations operating within their borders, even if they have no physical presence.

The measure, which is likely to affect digital behemoths such as Amazon and Facebook, would affect companies with global sales of more than 20 billion euros (£17 billion) and profit margins of more than 10%.

Any earnings they produce over the ten percent level will be redistributed and taxed in the countries where they were generated.

“This is a broad agreement that guarantees our international tax system is fit for purpose in a digitalized and globalized world economy,” OECD Secretary-General Mathias Cormann said.

“We must now work quickly and deliberately to ensure that this important change is implemented effectively.”

Corporate Response

Facebook applauded the agreement, stating that it has long advocated for global tax reform.

“We acknowledge that this may entail paying extra tax in certain areas,” said Nick Clegg, the company’s vice president for worldwide affairs. “The tax system must inspire public trust while also providing certainty and stability for companies. We are encouraged by the growing worldwide agreement.”

The ideas, however, will do nothing to help poor countries, according to Argentine Economy Minister Martin Guzman. Despite agreeing to the agreement, he insisted on a tax rate of at least 21%.

The 15% charge, according to Oxfam, is too low and will “let major offenders… off the hook.” The average corporation tax rate in developed countries is 23.5 percent, considerably over the agreed-upon level of 15%.

Susana Ruiz, the head of tax policy at Oxfam, stated: “The world is witnessing the biggest growth in poverty in decades, as well as a significant increase in inequality, yet this agreement will do nothing to address either. Instead, some affluent countries are already using it as a pretext to lower domestic corporate tax rates, creating a new race to the bottom.”

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