Global minimum corporate tax rate

Tax - profit shifting - Organisation for Economic Co-operation and Development (OECD).

(GMT, GMCT or GMCTR).

The concept of a global minimum corporate tax rate is to reduce, or eliminate, the benefits to multinational corporations of profit shifting.

Also known as a global minimum tax rate.

Significant impacts on treasurers

"In December 2021 the 137 members of the Organisation for Economic Co-operation and Development’s ‘inclusive framework’ agreed a new global minimum tax rate of 15%.

The rules, known as Pillar 2, will apply from 1 January 2024 in the UK, and will impact the tax profile of all multinational groups with global turnover above €750m.

The new regime will have significant impacts on treasurers through increased tax liabilities, common treasury transactions having unexpected tax effects, and impacts on cash requirements, hedging and risk management, financial reporting complexity and additional tax compliance requirements."

Graham Robinson, international tax and treasury partner PwC & Iain McDonald international tax and treasury director PwC - The Treasurer, Issue 4 2022 - December 2022, p40.

130 countries back global minimum corporate tax of 15%

"Most of the countries negotiating a global overhaul of cross-border taxation of multinationals have backed plans for new rules on where companies are taxed and a tax rate of at least 15%...

The Organisation for Economic Cooperation and Development (OECD), which hosted the talks, said a global minimum corporate income tax of at least 15% could yield around $150 billion in additional global tax revenues annually.

It said 130 countries, representing more than 90% of global GDP, had backed the agreement at the talks.

New rules on where the biggest multinationals are taxed would shift taxing rights on more than $100 billion of profits to countries where the profits are earned, it added.

Technical details are to be agreed by October so that the new rules can be implemented by 2023, a statement from countries that backed the agreement said.

The nine countries that did not sign were the low-tax EU members Ireland, Estonia and Hungary as well as Peru, Barbados, Saint Vincent and the Grenadines, Sri Lanka, Nigeria and Kenya.

Holdouts risk becoming isolated because not only did all major economies sign up, but so did many noted tax havens such as Bermuda, the Cayman Islands and the British Virgin Islands."

Reuters, July 2021.

Global minimum tax

"Finance Ministers from the Group of Seven (G7) rich nations reached a landmark accord... backing the creation of a global minimum corporate tax rate of at least 15%, an agreement that could then form the basis of a worldwide deal...

The global minimum tax rate would apply to overseas profits. 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 minimum rate, eliminating the advantage of shifting profits."

The Journal of Accountancy, June 2021.

See also

• Base erosion and profit shifting
• Corporate tax
• Corporation Tax
• Effective tax rate (ETR)
• European Union
• Financial reporting
• G7
• Gross domestic product (GDP)
• Group
• Holdouts
• Income Inclusion Rule (IIR)
• Income Tax
• Multinational corporation/company
• Nexus rule
• Organisation for Economic Co-operation and Development (OECD)
• Parent company
• Pillar 1
• Pillar 2
• Profit shifting
• Regime
• Risk management
• Sister company
• Subject To Tax Rule (STTR)
• Tax
• Tax avoidance
• Tax compliance
• Tax evasion
• Tax haven
• Tax rate
• Taxable profits
• Top-up Tax
• Transfer pricing
• Undertaxed Payments Rule (UTPR)

Other resources

• The Global Tax Agreement - Tax Foundation - December 2023
• Multinational top-up tax - Policy paper - UK government - September 2023