After years of debate, a group of 130 countries have finally agreed to implement a global minimum tax rate of 15% for multinational companies. The agreement, which was reached at the G7 summit in June 2021, marks a significant shift in the international tax landscape and aims to prevent large companies from shifting profits to low-tax jurisdictions.
The proposal for a global minimum tax rate was first introduced by the OECD (Organisation for Economic Co-operation and Development) in 2019 as part of its efforts to address tax avoidance by multinational corporations. The idea gained momentum as countries struggled to fill budget deficits caused by the COVID-19 pandemic.
Under the agreement, multinational companies with global revenues of over €750m ($880m) will be required to pay a minimum tax rate of 15% in countries where they operate. The tax will be based on the profits of the company, regardless of where they are generated.
This will be a game-changer for companies that have been exploiting tax loopholes in various countries. By having a global minimum tax rate, countries will be able to prevent companies from shifting profits to low-tax jurisdictions, thereby ensuring that they pay their fair share of taxes. This means that companies will no longer be able to take advantage of countries with lower tax rates and will have to pay a minimum tax rate of 15%.
The agreement has been welcomed by many countries including France, Germany, and the United States. However, some countries such as Ireland, which has a low corporate tax rate of 12.5%, have expressed concerns about the agreement. Countries like Ireland have been attracting multinational companies by offering low tax rates, and the agreement may impact their economy.
The global minimum tax rate also aims to create a level playing field for companies across countries. By having a minimum tax rate, large companies will no longer be able to undercut their competitors by exploiting tax loopholes. This will benefit smaller companies that do not have the resources to exploit tax loopholes.
In conclusion, the agreement on a global minimum tax rate is a significant step towards addressing tax avoidance by multinational companies. The 15% minimum tax rate will ensure that large companies pay their fair share of taxes, prevent tax competition, and create a level playing field for companies across countries. While some countries may be impacted by the agreement, the long-term benefits of a global minimum tax rate outweigh the short-term losses.
