IF, Global Companies Agree on '25%' Excess Profit Distribution and '15%' Minimum Corporate Tax Rate (Update)

[Sejong=Asia Economy Reporter Son Seonhee] The Organisation for Economic Co-operation and Development (OECD) and the Group of Twenty (G20) Inclusive Framework (IF) have reached a final agreement to allocate 25% of the excess profits of global companies to the countries where the sales occur (market jurisdictions). They also confirmed the application of a global minimum tax rate of 15% to prevent tax avoidance.

The Ministry of Economy and Finance reported that the OECD and IF held the 13th plenary meeting on the 8th (local time) and adopted the final agreement containing these details. The policy is expected to be fully implemented starting in 2023.

Among the 140 countries participating in the discussions on key issues that were unresolved at the July plenary meeting, 136 countries reached a consensus. The four countries that did not participate in the agreement are Kenya, Nigeria, Pakistan, and Sri Lanka.

The so-called "digital tax," which allocates taxing rights to market jurisdictions for global companies, was finally agreed upon at 25% (Pillar 1). However, in case of related disputes, "selective application" will be allowed for developing countries with limited dispute resolution capabilities. This is intended to accommodate countries with less experience and capacity in handling disputes. Whether a country qualifies for this will be periodically reviewed.

Once this system is implemented, existing digital services taxes and similar levies will be abolished. Additionally, between the date of the agreement and the activation of the multilateral treaty (before December 31, 2023), no new digital services taxes or similar levies will be imposed.

The global minimum tax rate was finalized at 15%. However, multinational enterprises in the early stages of overseas expansion will be exempt from this for five years. This applies to companies with tangible assets located abroad valued at 50 million euros or less and operating in five or fewer other jurisdictions.

This content was produced with the assistance of AI translation services.