A global deal to ensure that corporations pay a minimum tax rate of 15% has been agreed to by 136 countries.
The Organisation for Economic Cooperation and Development (OECD), which oversaw the push for the global minimum tax rate, said that four countries – Kenya, Nigeria, Pakistan and Sri Lanka – had not joined the agreement but that the deal had nevertheless been ratified.
“Today’s agreement will make our international tax arrangements fairer and work better,” the OECD said in a news release issued over the weekend. “This is a major victory for effective and balanced multilateralism.”
The OECD said that the minimum tax rate would see countries collect around $150 billion U.S. in new revenues annually while taxing rights on more than $125 billion U.S. of profit would be shifted to countries where big multinationals earn their income.
The deal on a minimum global tax rate comes after some changes were made to the original text of the agreement, notably that the rate of 15% will not be increased at a later date, and that small businesses will not be hit with the new tax.
Those changes helped Ireland, a long-time opponent of raising corporate tax rates, to get on board with the plan. Hungary, another holdout, also changed its mind after receiving reassurances that there will be a lengthy implementation period for the global business tax.
Countries now have to work out some outstanding details so that the new deal is ready to be implemented in 2023.
The agreement is “a once-in-a-generation accomplishment for economic diplomacy,” U.S. Treasury Secretary Janet Yellen said in a written statement. Yellen applauded the many nations who “decided to end the race to the bottom on corporate taxation.”
The deal marks a shift in tax policy because it not only imposes a minimum corporate tax rate, but it also forces companies to pay taxes where they operate, not just where they have their headquarters.
The exact formula for determining how much companies will owe across the various jurisdictions is a detail that still needs to be finalized.