After years of complex negotiations, 130 countries and territories have agreed to fundamental changes to the way they tax companies around the world, but some details remain unresolved, domestic legislation is incomplete and holdout countries are yet to be convinced.
The agreement was reached in Paris on July 1 under the auspices of the Organization for Economic Cooperation and Development, the report said. The move follows an agreement reached last month by the Group of Seven industrialized nations. The deal would set a minimum global corporate tax rate of at least 15 per cent and give countries new powers to tax big companies based on where their revenues come from rather than where they are registered.
The OECD estimates that such a minimum tax rate could raise more than $150bn a year in additional tax revenue, with the jurisdiction change raising another $15bn - $17bn a year. A change in jurisdiction would affect only the world's largest companies, those with annual revenues of more than �20bn and a pre-tax profit margin of at least 10 per cent.
Reports said the deal would introduce a mandatory dispute settlement mechanism to prevent squabbles between countries, a move pushed by the business community.
The agreement confirmed that a minimum tax rate of at least 15 per cent would apply to companies with annual revenues of �750m or more. Countries can choose to apply it to businesses of all sizes if they wish.
As recently as two weeks ago, many countries had refused to join the agreement, prompting a period of intensive high-level pressure from the US, the report said. Earlier this year, the US reinvigorated stalled global talks with a new proposal.
The report notes that only eight countries have refused to join: Barbados, Estonia, Hungary, Ireland, Kenya, Nigeria, Sri Lanka and St Vincent and the Grenadines, several of which are tax havens and stand to lose a lot.
Peru abstained because it now has no government.
The rejection by the three EU member states is an embarrassment for Brussels and could cause real problems, the report said. The commission plans to introduce the international agreement into EU law, but the tax order requires unanimous agreement, and it is not clear whether the holdout countries will veto it.
Changes in jurisdiction have the greatest impact on the countries where many MNEs are based.
Research by Michael Devereux and Martin Simler of Oxford University's Said Business School estimates that about 64 per cent of the tax increase from the change in jurisdiction would come from companies based in the US and 45 per cent from technology companies.
Companies not affected by the change in jurisdiction include those in the financial services and extractive industries. However, countries where many multinational companies are headquartered will be the biggest beneficiaries of the lowest global tax rates, particularly the US.
Exclusions include shipping companies and those that invest in tangible assets, such as factories and machinery, to get a discount.
Tax havens stand to lose the most, the report said, because the agreement allows countries to levy additional taxes on companies that do not pay the lowest tax rate in each location of business, erasing the advantage gained by channelling income to low-tax jurisdictions.
Some developing countries have complained that the deal does not generate enough tax revenue for them.
The report noted that the global agreement would replace national digital taxes already in place in some countries, but it was not clear when they would abandon them.
The agreement promises "appropriate coordination," but tax experts warn that this will not be easy as each country will need to legislate at its own pace.
The agreement will be discussed at a meeting of G20 finance ministers in Venice next week and at a meeting of G20 leaders in Rome in October.
Technical talks will continue at the OECD to hammer out the remaining details.
Each country will have to pass domestic legislation next year to turn the final agreement into law, and the new rules will take effect in 2023, the report said.
