Global minimum tax deal: All you need to know

In a bid to clamp down on big corporations from gaming the rules, the Group of 20 (G-20) countries will meet on July 9-10 to endorse a deal that was reached under the auspices of the OECD (Organisation for Economic Co-operation and Development). As many as 131 nations have agreed to the provisional global minimum tax deal and the expected endorsement by G-20 will add momentum to reach a final deal by October, reported AFP.

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Here is what you need to know about the global minimum tax deal:

In general, the proposed deal aims to prevent companies from establishing bases in countries with low taxes in order to maximise profits earned elsewhere. Many companies have bases in several countries but pay taxes in their fiscal homes.

The proposed deal basically has two pillars:

One, the deal will give countries a share of the taxes on profits earned there. However, the tax will still be collected where the company has its fiscal base.

This provision will initially apply to about 100 companies.

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The second pillar is the global minimum corporate tax rate that will stop competition between countries in offering companies the lowest tax rate.

As per the provisional deal, the global minimum corporate tax will be set at 15%.

All G-20 countries were part of the 131 countries that have backed the deal. An October deadline has been set for the finalisation of the deal, before its final roll out in 2023. 

As many as 139 countries had participated in the deal, 131 backed it and eight didn’t not. The nations that didn’t agree to the deal are Barbados, Estonia, Ireland, Hungary, Kenya, Nigeria, Saint Vincent and the Grenadines, and Sri Lanka.

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According to Kenya and Nigeria, the deal offers insufficient guarantees to developing countries.

Ireland opposes the 15% tax rate, although it supports the measure to redistribute taxes paid by the companies.

Meanwhile, Hungary says that the tax rate is too high.