Over 130 countries okay deal to levy 15% corporate tax on multinational companies

In a major development, 136 countries across the world have agreed on a tentative deal that would make changes to how multinational companies are taxed. The deal, which comes days after the Pandora Papers leak, ensures that business tycoons refrain from accumulating assets or profits in offshore tax havens. Notably, the deal, announced by the Organisation for Economic Cooperation and Development on Friday, was led by the world's biggest economy- the United States and supported by European giants including the UK, Germany, and Ireland. 

Under the agreement, all the participant countries would enact a global minimum corporate tax of 15 per cent on the biggest, internationally active firms, reaping an estimated $150 billion US for government coffers once implemented. Another factor is that it also empowers governments to tax companies operating within their borders, even if they do not have physical offices. The path-breaking agreement is expected to be implemented in 2023.  

"The historic reforms, agreed in principle by the G7 at talks chaired by the Chancellor in June, will mean multinationals pay their fair share of tax in the countries they do business (Pillar One), along with a minimum 15% corporation tax rate in each country they operate in (Pillar Two)," the UK administration said in a statement. 

World leaders welcome the deal 

Calling it “path to a fairer tax system,” UK’s Chancellor of the Exchequer Rishi Sunak said that the agreement would upgrade the global tax system for the modern age” The deal was also welcomed by outgoing German Chancellor Angela Merkel and American treasury secretary Janet Yellen who touted that it would end the global race to have lowest tax rates. 

“Today's agreement represents a once-in-a-generation accomplishment for economic diplomacy, “Yellen said in a statement. "In its place, more than 130 nations – including all 20 in the G20 – have agreed to a new and specific set of provisions to uniformly tax the income of multinational companies, including a global minimum tax. Rather than competing on our ability to offer low corporate rates, America will now compete on the skills of our workers and our capacity to innovate, which is a race we can win," she added. 

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