Global Corporate Minimum Tax Rate Endorsed by G20

On October 30, all members of the G20 endorsed a global corporate minimum tax rate of 15% in an effort to discourage countries from slashing corporate tax rates and creating tax shelters to attract large multinational corporations.

The agreement comes on the heels of an international agreement in October among 136 of the 140 Organization for Economic Cooperation and Development (OECD) members, that featured two pillars.

  • Pillar One says taxing rights will be reallocated to market jurisdictions to ensure that market economies receive tax revenue even in locations where large multinational enterprises (MNEs) lack a physical presence. MNEs with global sales above 20 billion euro and profitability above 10% will be covered by the new rules, with 25% of profit above the 10% threshold to be reallocated to market jurisdictions.
  • Pillar Two introduces the global minimum corporate tax rate set at 15%, which applies to companies with revenue above 750 million euro.

Each country will need to ratify the tax within its own governing structure

“The final political agreement as set out in the Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitaliaation of the Economy and in the Detailed Implementation Plan, released by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) on October 8, is a historic achievement through which we will establish a more stable and fairer international tax system,” the final Rome Declaration states. “We call on the OECD/G20 Inclusive Framework on BEPS to swiftly develop the model rules and multilateral instruments as agreed in the Detailed Implementation Plan, with a view to ensure that the new rules will come into effect at global level in 2023.”

Tax To Generate $60 Billion Annually for U.S.

A White House spokesperson said October 29 ahead of the formal G20 endorsement that the 15% global corporate minimum tax would generate at least $60 billion annually. The tax has been proposed as part of the current version of the Build Back Better Act as a key revenue generator that will help offset the new spending that is included in the legislation that has passed the Senate and is not awaiting a vote in the House.

Treasury Secretary Janet Yellen said at a November 1 press conference that while the agreed upon global corporate minimum tax rate was set at 15%, it could conceivably go higher, although that is not expected.

Individual countries “may choose themselves to establish a higher tax, but I expect many countries to adopt a 15% tax,” Yellen said, adding that there is nothing that makes 15% represents a fixed percentage, a minimum or even a ceiling. ” I don’t think that there’s broad agreement on that. It works for many countries, and I don’t think that’s something that is going to be reconsidered as a as a global minimum.”

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