G20 finance ministers announce their support to tax multinational companies

The G20 finance ministers announced their support following a two-day meeting in Venice, Italy. So far, 132 countries have signed up to the framework, being championed by The Organisation for Economic Cooperation and Development (OECD). The policy will now go to a meeting of G20 leaders in October 2021 for final consideration.

The plan to battle tax avoidance puts in place a minimum global corporate tax rate of 15% and it is likely to affect companies like Amazon and Facebook.

Now companies can set up local branches in countries that have relatively low corporate tax rates and declare profits there. That means they only pay the local rate of tax, even if the profits mainly come from sales made elsewhere. This is legal and commonly done.

However, under the new deal, companies pay more tax in the countries where they are selling their products or services, rather than wherever they end up declaring their profits. Also, a global minimum tax rate would help avoid countries undercutting each other with low tax rates.