The Chancellor of the Exchequer has hailed global cooperation after 136 countries agreed a new system ensuring large multinationals pay the right tax in the right places.
Historic reforms will introduce a 15 per cent global minimum corporate rate along with changes to where large firms are taxed, aiming to become effective from 2023.
The Government says the deal will create a more level playing field for UK firms and crack down on tax avoidance.
The Organisation for Economic Cooperation and Development (OECD), an intergovernmental organisation, has facilitated the talks on the minimum rate for a decade.
The move – which is expected to hit digital giants like Amazon, Google and Facebook – will affect firms with global sales above 20 billion euros (£17 billion) and profit margins above 10 per cent.
The landmark plan comes from the deal agreed in principle by the G7 at talks chaired by the Chancellor in June.
Multinationals must pay fair share
The reforms will mean multinationals pay their fair share of tax in the countries they do business, along with a minimum 15 per cent corporation tax rate in each country they operate in.
Commenting on the agreement, Chancellor Rishi Sunak said: “I am proud that the UK has taken a leading role in the world’s efforts to upgrade the global tax system for the modern age – a key priority of our G7 presidency.
“We now have a clear path to a fairer tax system, where large global players pay their fair share wherever they do business.”
The UK has pushed for an international solution to the challenge of taxing technology multi-nationals for nearly a decade.
The deal means that firms with at least a 10 per cent profit margin will see 25 per cent of any profit above the 10 per cent profit margin reallocated and then subjected to tax in the countries they operate.
Facebook ‘glad to see international consensus’
Previously countries had only agreed to reallocating between 20 per cent and 30 per cent.
The Government says that the 15 per cent global minimum corporation tax will be operated on a country by country basis.
According to a report in the Guardian newspaper, Facebook welcomed the deal, saying it has long called for reform of global tax rules.
“We recognise this could mean paying more tax, and in different places,” said Nick Clegg, its vice president for global affairs.
“The tax system needs to command public confidence, while giving certainty and stability to businesses. We are pleased to see an emerging international consensus.”
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