n what U.S. Treasury Secretary Janet Yellen has called a "historic day for economic diplomacy," today, 130 countries, representing more than 90% of global GDP, have agreed on a minimum corporate tax rate which will apply to multinational corporations, regardless of where in the world they operate.
According to the OECD, the framework, which will see a minimum 15% global corporate tax rate on companies with revenues over €20 billion ($24 billion), and "updates key elements of the century-old international tax system, which is no longer fit for purpose in a globalised and digitalised 21st century economy."
The negotiations to reach this agreement have taken nearly a decade, as companies have jockeyed their positions around the globe for the most favorable tax conditions, pitting countries against each other in what Yellen referred to as "a global race to the bottom."
The package is a two-pronged approach that is expected to provide a more equitable distribution of profits by re-allocating taxing rights over multinational corporations from their home countries to the countries where they do business, whether they have a physical presence in that country or not. The guidelines also apply to digital-only companies.
"For decades, the United States has participated in a self-defeating international tax competition, lowering our corporate tax rates only to watch other nations lower theirs in response," the Treasury Secretary tweeted as the news broke. "Lower tax rates have not only failed to attract new business, they've also deprived countries of funding for important investments like infrastructure, education, & efforts to combat the pandemic."
The corporate income tax is also designed to set a minimum tax rate that countries will be able to use to protect their tax bases.
According to the OECD, this approach is expected to "provide much-needed support to governments needing to raise necessary revenues to repair their budgets and their balance sheets while investing in essential public services, infrastructure and the measures necessary to help optimise the strength and the quality of the post-COVID recovery."
The plan is set to be finalized in October, and is expected to be implemented in 2023.
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A Historic Day for Economic Diplomacy
Image by AdobeStock.
July 1, 2021
130 countries, representing more than 90% of global GDP, have agreed on a minimum corporate tax rate which will apply to multinational corporations, regardless of where in the world they operate.
I
n what U.S. Treasury Secretary Janet Yellen has called a "historic day for economic diplomacy," today, 130 countries, representing more than 90% of global GDP, have agreed on a minimum corporate tax rate which will apply to multinational corporations, regardless of where in the world they operate.
According to the OECD, the framework, which will see a minimum 15% global corporate tax rate on companies with revenues over €20 billion ($24 billion), and "updates key elements of the century-old international tax system, which is no longer fit for purpose in a globalised and digitalised 21st century economy."
The negotiations to reach this agreement have taken nearly a decade, as companies have jockeyed their positions around the globe for the most favorable tax conditions, pitting countries against each other in what Yellen referred to as "a global race to the bottom."
The package is a two-pronged approach that is expected to provide a more equitable distribution of profits by re-allocating taxing rights over multinational corporations from their home countries to the countries where they do business, whether they have a physical presence in that country or not. The guidelines also apply to digital-only companies.
"For decades, the United States has participated in a self-defeating international tax competition, lowering our corporate tax rates only to watch other nations lower theirs in response," the Treasury Secretary tweeted as the news broke. "Lower tax rates have not only failed to attract new business, they've also deprived countries of funding for important investments like infrastructure, education, & efforts to combat the pandemic."
The corporate income tax is also designed to set a minimum tax rate that countries will be able to use to protect their tax bases.
According to the OECD, this approach is expected to "provide much-needed support to governments needing to raise necessary revenues to repair their budgets and their balance sheets while investing in essential public services, infrastructure and the measures necessary to help optimise the strength and the quality of the post-COVID recovery."
The plan is set to be finalized in October, and is expected to be implemented in 2023.
