In October 2021, 136 countries representing more than 90% of the world’s gross domestic product (GDP) signed an international agreement establishing a minimum global corporate tax rate of 15%. According to the Organisation for Economic Co-operation and Development (OECD), the new rules promise to bring additional annual revenues amounting to around USD 150 billion.
Although Ireland, Hungary and Estonia, all of which have low corporate tax rates, initially opposed the introduction of a minimum global tax, they eventually signed the proposal. The Irish Finance Minister even went so far as to say that he was “absolutely certain” that the agreement serves Ireland’s interests. Some countries (e.g., Pakistan, Kenya, Sri Lanka, and Nigeria) have not signed the proposal. However, those countries are not of a major economic importance and are rarely used for tax optimization purposes.
The international agreement is not a reason for concern for most businesses, including those established in low-tax countries. This is because the minimum global tax of 15% will apply only to firms having global sales exceeding EUR 20 billion and profit margins exceeding 10%. Needless to say, the agreement targets mainly corporate giants, such as Facebook, Apple, and Amazon. Such companies may no longer be able to avoid paying corporate tax in the countries in which they do business by using legal tax optimization strategies.
The new global minimum tax rate will enter into force in 2023. It is criticized by some tax experts who argue that it will not require tech giants to pay sufficient tax. Since the average corporate tax rate in developed countries is about 23,5%, the 15% minimum tax rate is far below the average. The economy minister of Argentina argued that the rate must be at least 21%.