A majority of the world’s nations have signed a historic pact that could force multinational companies to pay their fair share of tax in markets where they operate and earn profits. One hundred and thirty-six countries, including India, agreed Friday to enforce a minimum corporate tax rate of 15%, and an equitable system of taxing profits of big companies in markets where they are earned. Kenya, Nigeria, Pakistan and Sri Lanka have not yet joined the deal.
The move is part of an evolving consensus that big multinationals are funnelling profits through low-tax jurisdictions to avoid paying taxes. The Organisation for Economic Cooperation and Development (OECD), comprising mostly developed economies, has led talks on a minimum corporate tax rate for a decade. A multilateral convention is to be signed next year.
The biggest impact is likely on Big Tech companies that have largely chosen low-tax jurisdictions to headquarter their operations.
What are the decisions taken?
The decisions effectively ratify the OECD’s two-pillar package that aims to ensure that large multinational enterprises (MNEs) “pay tax where they operate and earn profits”.
Pillar One aims to ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies. This would entail reallocation of some taxing rights over MNEs from their home countries to markets where they have business and earn profits, regardless of whether firms have a...
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