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Economy
Pradeep Kumar

10/10/21 10:00 AM IST

Global pact made on minimum corporate tax

In news

136 countries agreed to enforce a corporate tax rate of at least 15%, as well a fairer system of taxing profits where they are earned.

Aim

The deal aims to end a four-decade-long “race to the bottom” by governments that have sought to attract investment and jobs by taxing multinational companies only lightly and allowing them to shop around for low tax rates.

Why this agreement?

The new digital era giants have become adept at simply moving profits around, from the regions where they do business to those where they will pay the lowest taxes. Good news for tax havens, bad news for everyone else.

Significance

Countries will also have more scope to tax multinational companies operating within their borders, even if they don't have a physical presence there.

Opposition
  • Ireland, Hungary and Estonia - all of which have corporate tax rates below 15% - at first resisted the plan but are now on board.
  • Ireland currently has a rate of 12.5%, which has helped it attract large amounts of foreign investment and become a base for big US firms such as Apple.
  • Kenya, Nigeria, Pakistan and Sri Lanka have not yet signed up to the plan.
Source: The Hindu

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