Global Minimum Tax Rate: Around 130 countries Back 15% Tax Rate On Multinationals; Know How It Will Impact Companies

The global minimum corporate income tax of at least 15 per cent could yield around $150 billion in additional global tax revenues annually.

Paris: It may have financial complications for multinational companies operating globally if the new rules under a global overhaul of cross-border taxation get implemented. As of now, most countries negotiating the overhaul of cross-border taxation have backed plans for new rules on where companies are taxed and a tax rate of at least 15 per cent.

Around 130 countries, representing more than 90 per cent of global GDP, had backed the agreement at the talks hosted by the Paris-based Organisation for Economic Co-operation and Development. The organisation said a global minimum corporate income tax of at least 15 per cent could yield around $150 billion in additional global tax revenues annually.

How it will impact multinationals?

Under the proposed global minimum tax, multinational corporations will no longer be able to lobby for a tax rate cut. "With a global minimum tax in place, multinational corporations will no longer be able to pit countries against one another in a bid to push tax rates down," US President Joe Biden said in a statement.

"They will no longer be able to avoid paying their fair share by hiding profits generated in the United States, or any other country, in lower-tax jurisdictions," he said, according to Reuters.

As per the Reuters report, it was tougher to get Beijing on board, and there were no China-specific caveats or exceptions in the deal.

What is corporate minimum tax?

Under the minimum corporate tax, countries do not need to set rates at the agreed floor but other countries have the right to apply a top-up levy to the minimum on companies' income coming from a country that has a lower rate. The Group of Seven advanced economies agreed in June on a minimum tax rate of at least 15 per cent. The broader agreement will go to the Group of Twenty major economies for political endorsement at a meeting in Venice next week.

The new minimum tax rate of at least 15 per cent would apply to companies with turnover above a 750-million-euro ($889-million) threshold, with only the shipping industry exempted. The new rules are aimed to divide the right to tax their profits in a fairer way among countries as the emergence of digital commerce had made it possible for big tech firms to book profits in low tax countries regardless of where the money was earned, as per the news agency.