Global minimum tax

• A global deal to ensure big companies pay a minimum tax rate of 15% and make it harder for them to avoid taxation has been agreed by 136 countries, the Organisation for Economic Cooperation and Development said.

About:

• The OECD said four countries – Kenya, Nigeria, Pakistan and Sri Lanka – had not yet joined the agreement, but that the countries behind the accord together accounted for over 90% of the global economy.

Why a global minimum tax?

• With budgets strained crisis, many governments want more than ever to discourage multinationals from shifting profits – and tax revenues – to low-tax countries regardless of where their sales are made.

How would a deal work?

• The global minimum tax rate would apply to overseas profits of multinational firms with 750 million euros ($868 million) in sales globally.

• Governments could still set whatever local corporate tax rate they want, but if companies pay lower rates in a particular country, their home governments could “top up” their taxes to the 15% minimum, eliminating the advantage of shifting profits.

• A second track of the overhaul would allow countries where revenues are earned to tax 25% of the largest multinationals’ so-called excess profit – defined as profit in excess of 10% of revenue.

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Mains Paper 3: Economy

Prelims level: Global minimum tax

Mains level: Highlights the mechanism of global minimum tax process

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