The Organization for Economic Cooperation and Development has agreed on a global minimum corporate tax rate of 15%.
What Happened: The decision was reached on Friday after years of negotiations. The agreement is expected to have a significant impact on smaller economies, like the Republic of Ireland, which have attracted international firms with a lower tax rate.
“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 (Multinational Enterprises) to countries worldwide, ensuring that these firms pay a fair share of tax wherever they operate and generate profits,” the OECD said in a statement.
The rate of 15% will not be increased at a later date, and small businesses will not be effected by the new rates. Countries also agreed to avoid imposing new digital services taxes as of Friday, although no timeline was set to repeal existing taxes.
What’s Next:The OECD said the minimum rate could ultimately raise government incomes by $150 billion a year.
The agreement is “a once-in-a-generation accomplishment for economic diplomacy,” U.S. Treasury Secretary Janet Yellen said in a statement.
The accord was partly spurred by the COVID pandemic, which led to a renewed conversation about the need for fairer taxation, as governments around the world were pressured to allocate pandemic relief funding.
The OECD has yet to finalize the exact formula for how much in taxes companies will owe across the various jurisdictions.
Relate Link: 4 Catalysts That Could Send The Stock Market Higher Or Lower From Here
