Jul 1, 2021 - Economy

130 countries agree to global minimum corporate tax rate

Janet Yellen

Photo: Justin Tallis - WPA Pool/Getty Images

130 countries around the world — including, crucially, China and India — have agreed on a 15% minimum corporate tax rate, in a move designed to prevent what Treasury Secretary Janet Yellen called a "self-defeating international tax competition."

Why it matters: Corporations will have to pay tax of at least 15% no matter where they operate in the world. The OECD framework, agreed to Thursday but many years in the making, includes penalties for companies and jurisdictions attempting to bypass the rule.

The big picture: Companies have become expert at concentrating their profits in jurisdictions with low or zero corporate tax rates. (Switzerland, Ireland and the Netherlands are all popular.) That tax dodge — which is entirely legal — will become much less attractive once this agreement comes into force.

How it works: The minimum tax will apply to large multinational companies. Any profitable firm with revenues over €20 billion ($24 billion) will be included from the start, with that number expected to decline to €10 billion ($12 billion) in time.

What's next: The rules will be brought into domestic law in 2022, and will take effect in 2023.

The bottom line: Companies will retain broad latitude in where they pay tax; they just won't have as much freedom as they currently do over whether they pay tax.

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