GS Paper - 3 (Economy)

A group of 136 countries set a minimum global tax rate of 15% for big companies and sought to make it harder for them to avoid taxation in a landmark deal that U.S. President Joe Biden said levelled the playing field. The deal aims to end a four-decade-long “race to the bottom” by setting a floor for countries that have sought to attract investment and jobs by taxing multinational companies lightly, effectively allowing them to shop around for low tax rates.

What

  1. The deal aims to stop large firms booking profits in low-tax countries such as Ireland regardless of where their clients are, an issue that has become ever more pressing with the growth of “Big Tech” giants that can easily do business across borders.
  2. Out of the 140 countries involved, 136 supported the deal, with Kenya, Nigeria, Pakistan and Sri Lanka abstaining for now.
  3. The Paris-based Organisation for Economic Cooperation and Development (OECD), which has been leading the talks, said that the deal would cover 90% of the global economy.

WHY A GLOBAL MINIMUM TAX?

  1. With budgets strained after the COVID-19 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.
  2. Increasingly, income from intangible sources such as drug patents, software and royalties on intellectual property has migrated to these jurisdictions, allowing companies to avoid paying higher taxes in their traditional home countries.
  3. The minimum tax and other provisions aim to put an end to decades of tax competition between governments to attract foreign investment.