G20 have agreed to endorse a 15% global minimum corporate tax during the summit in Rome. The tax framework was proposed by the OECD in July 2021 as a method to challenge new tax issues that have been created by an increasingly digital economy.
The landmark agreement involving 136 countries and jurisdictions, representing more than 90% of global GDP, will also reallocate more than $125 billion of profits from around 100 of the world’s largest and most profitable MNEs to countries worldwide, in an effort to ensure that these firms pay their fair share of tax wherever they operate and generate profits.
The tax framework, agreed upon Saturday, is aimed at multi-national tech entities that have a global turnover above €20 billion. Specifically Google, Amazon, and Facebook. It adopts a multilateral top-down approach to curb tech conglomerates from using tax havens to stash profits. US Treasury Secretary Janet Yallen stated that it also aims to prevent countries from abusing low tax rates in countries with minimal activity.
Exemptions will be enacted to prevent double taxation of profits allocated to the market. Tax certainty, dispute prevention, and resolution provisions will also be provided for corporations subject to the framework.
Different nations are expected to benefit more from the framework than others. The Wall Street Journal speculates that there will be a $1.5–2 billion tax revenue boost to developing countries. US President Joe Biden has also suggested that this new framework will disincentive corporations from outsourcing jobs and moving profits abroad.
Its status as an international treaty proposal would mean that countries would have to ratify the framework to give it legally binding status. The International Tax Review expects that other tax initiatives regarding carbon emissions will be considered before the final plan is presented.
The 2021 United Nations Climate Change Conference (Cop26) started on Sunday in Glasgow. Issues revolving around climate change and international tax policy will likely be discussed synchronously.
The rule is expected to be in force by 2023.