The new global minimum tax deal seeks to have corporations pay a minimum of 15% in taxes with
specific aim at multinational enterprises to give a fairer distribution of profits and taxing rights
amongst countries.
By Gabrielle Bunton and Jule Ahles
Since the pandemic, the world leaders and the elite have been under scrutiny due to the state of the
economy in countries all over the world. As the rich get richer, people began to wonder how they were
able to thrive during a time where people faced hardships.
Recently many millionaires and billionaires have made headlines because of whistleblowers exposing
secrets and information of some of the world’s most powerful people and corporations. For example,
earlier this month the Pandora Papers were leaked. They were millions of leaked documents that have
uncovered financial secrets of 35 current and former world leaders, more than 330 politicians, public
officials in 91 countries and territories according to the International Consortium of Investigative
Journalists.
Even before the Pandora Papers, it has been years that many have said that the world’s richest went to
great lengths to protect their money, including paying little to nothing in taxes and putting their
corporations in countries with small tax percentages.
In an effort to combat instances like this, Organisation for Economic Co-operation and Development
(OECD) has struck a major deal with multiple countries and jurisdictions for a global tax minimum.
This deal will provide major reform of the international tax system. The deal is split into two pillars.
Pillar One will ensure a fairer distribution of profits and taxing rights among countries with respect to
the largest and most profitable multinational enterprises. It will re-allocate some taxing rights over
MNEs from their home countries to the markets where they have business activities and earn profits,
regardless of whether firms have a physical presence there.
Specifically, multinational enterprises with global sales above EUR 20 billion and profitability above
10% – that can be considered as the winners of globalisation – will be covered by the new rules, with
25% of profit above the 10% threshold to be reallocated to market jurisdictions.
Pillar Two introduces a global minimum corporate tax rate set at 15% from 2023. The new minimum
tax rate will apply to companies with revenue above EUR 50 million and is estimated to generate
around EUR 130 billion in additional global tax revenues annually. Further benefits will also arise
from the stabilisation of the international tax system and the increased tax certainty for taxpayers and
tax administrations.
VIDEO: The OECD Tax Deal in 60 seconds – Studietube
According to OECD, the landmark deal, agreed by 136 countries and jurisdictions representing more
than 90% of global GDP, will also reallocate more than EUR 108 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.
Daniel Bunn, Vice President of Global Project for the Tax Foundation, has been following the deal
and the conversations around it for around 8 or more years. “It represents the next stage in a process
that’s been ongoing for countries that are evaluating ways to change tax rules for multinational
companies,” said Bunn.
The OECD states that the global minimum tax agreement does not seek to eliminate tax competition,
but puts multilaterally agreed limitations on it, and will see countries collect around EUR 130 billion
in new revenues annually.
Bunn says that the agreement was symbolic, but there are more moves to be made for international
corporation tax. “It’s a meaningful agreement because it takes a further step into the earlier
conversations. There are still a lot of details to be worked out, especially with respect to the global
minimum tax policy is kind of like a template. It’s optional,” said Bunn
The deal has brought out a mix of different emotions from all sides. Paul Tang, member of the
Progressive Alliance of Socialists and Democrats in the European Parliament and Chair of the
subcommittee on Tax Matters says that the deal is historical, and he is very happy. “This is really
changing the world of corporate taxation. It’s historical. It’s not perfect. An agreement is never
perfect, but yes it’s historical,” says Tang.
Even though over 100 countries have agreed to the deal some have had their reservations like Ireland.
According to Tang, they wondered if Ireland would give up the 12.5% due to the symbolism behind it.
Ireland was once a very poor country, so with the huge economic growth the Irish relate it to direct
foreign investments. “Partly it is related to direct foreign investments. In the Irish mindsets low
taxation was very important. In the end, they gave up the 12.5% for the 15% and I am very happy
about that,” said Tang.
From a business perspective Pieter Baer, Tax Adviser at Business Europe, welcomes the agreement.
Business Europe is a partner of the EU and they represent all employees across the union, in each
country. Baer noticed that there were different national measures, avoidance and more when dealing
with corporate taxes.
“Now that we have a global solution to the problem, businesses get certainty. That was the most
important thing. What we have now with the OECD will be a harmonized approach. This will affect
every big business that operates all over the world. They needed one set of rules, so that is why we
welcome this agreement,” said Baer.
The tax deal is nothing new and has been ongoing for years. It has been watched closely by many
politicians and organizations. Dr. Veronique de Rugy, George Gibbs Chair of Political Economy at the
Mercatus Center at George Mason University, has noticed many things from the deal. The most
prominent to Rugy was that rich nations are forcing developing nations to limit their growth and
developmental potential.
Rugby uses the economic success of Ireland as an example of how the tax deal limits developing
countries. “People often forget that rich nations like the Republic of Ireland were impoverished not too
long ago. Ireland was able to overtake most rich nations by lowering its corporate tax rate from 50% to
12.5%, attracting Google, Apple, Facebook, PayPal, Microsoft, Yahoo, eBay, AOL, Twitter and Intel
to set up major operations in Ireland” said Rugy.
Back in the 1980’s and even 1990’s, Ireland had a gross domestic product of just EUR 25 billion. It is
now over EUR 373 billion which is higher than that of the United States. Rugby thinks that by setting
this tax rate it will prevent developing countries from earning.
“By setting a global floor on corporate taxation (one that will likely creep up over time), we are
preventing developing countries from being able to follow the path that Ireland followed. I was
shocked to see that Ireland caved to the pressure. In effect, rich nations are keeping developing
countries impoverished to avoid international tax competition. There is something deeply immoral
about that,” said Rugy.
The deal proposes an even playing field and harmony among multinational companies and various
countries. While the EU has been one of the more major supporters of the deal, the U.S. has formally
endorsed the deal despite their own global minimum tax of 10.5% that was created on U.S.
multinational firms’ foreign earnings which was a part of the 2017 GOP Tax Act.
As reported by the Washington Post, The Biden administration initially proposed raising the tax on
foreign profits to 21 % as a demonstration of America’s commitment to higher corporate taxes, but
after negotiations with congressional Democrats, have instead proposed a 15 % rate in line with the
global agreement.
The spending-and-tax plan being discussed in Congress also includes a separate 15 % tax minimum
tax on the domestic profits of large U.S. companies. The U.S. corporate tax rate today stands as 21%,
but many companies pay well below that thanks to deductions.
As the new tax deal makes its way around to other countries and territories for agreement, there is still
more work to be done for international corporation tax.
