Published on: October 11, 2021

GLOBAL MINIMUM TAX

GLOBAL MINIMUM TAX

bluely What is in news : The deal proposed by OECD has been accepted by 136 countries

Which countries are yet to ratify : Kenya, Nigeria, Pakistan and Sri Lanka

ABOUT

What : It is a minimum tax to ensure big companies pay a minimum tax rate of 15% and make it harder for them to avoid taxation

Benefits :

  • Strained budgets after the COVID-19 crisis
  • 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.

How will it 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.