Global minimum tax rate: Key things to know about the landmark deal

Highlights 

  • After years of disagreement and rounds of discussions, the world leaders finally reached a landmark deal on a global corporate minimum tax rate.
  • The group of developed nations have agreed to a 15% as minimum corporate tax rate.
  • The deal was sealed after a few changes were made to the original text. 

After years of disagreement and rounds of discussions, the world leaders finally reached a landmark deal on a global corporate minimum tax rate. According to the deal, which is said to be a gamechanger for global economies, the group of developed nations have agreed to a 15% as minimum corporate tax rate.

The deal was sealed after a few changes were made to the original text. The changes include the promise of not increasing 15% tax rate at a later date. It also says that the small businesses will not be hit with the new rates.

“The landmark deal, agreed by 136 countries and jurisdictions representing more than 90% of global GDP, will also reallocate more than USD 125 billion of profits from around 100 of the world’s largest and most profitable MNEs to countries worldwide, ensuring that these firms pay a fair share of tax wherever they operate and generate profits,” the OECD said on Friday.

Global minimum tax rate: Key things to know about the landmark deal

Due to the above-mentioned changes to the original text, Ireland, a longtime opponent of raising corporate tax rates, got on board. The other long-term critic Hungary also joined the group after receiving reassurances.

The agreement is “a once-in-a-generation accomplishment for economic diplomacy,” U.S. Treasury Secretary Janet Yellen said.

“International tax policymaking is a complex issue, but the arcane language of today’s agreement belies how simple and sweeping the stakes are: When this deal is enacted, Americans will find the global economy a much easier place to land a job, earn a living, or scale a business,” Yellen said.

Key things to know about the agreement:

  • The deal not only has a minimum corporate tax rate, but it also forces corporations to pay taxes where they operate and not only the places where they have their headquarters.
  • However, it still has to be figured out how much companies will owe in taxes across the different jurisdictions.
  • The nations across the globe will now have to work out some outstanding details so the new deal is ready by 2023.

It is being assumed that COVID-19 pandemic renewed a need for fairer taxation, as the world governments are struggling for new sources of funding.

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