The Minimum Tax on Big Businesses

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Overview:

Members of the European Union recently agreed in principle to implement a minimum tax of 15% on big businesses.

 What is Minimum Tax on Big Businesses?

  • European Union members have agreed to implement a minimum tax rate of 15% on big businesses in accordance with Pillar 2 of the global tax agreement framed by the Organisation for Economic Cooperation and Development (OECD) in 2021.
  • Under the OECD’s plan, governments will be equipped to impose additional taxes in case companies are found to be paying taxes that are considered too low.
  • This is to ensure that big businesses with global operations do not benefit by domiciling themselves in tax havens in order to save on taxes.
  • Pillar 1 of the OECD’s tax plan, on the other hand, tries to address the question of taxing rights.
  • Large multinational companies have traditionally paid taxes in their home countries even though they did most of their business in foreign countries.
  • The OECD plan tries to give more taxing rights to the governments of countries where large businesses conduct a substantial amount of their business.
  • As a result, large U.S. tech companies may have to pay more taxes to governments of developing countries.

 


Q1) What is the aim of OECD?

The Organisation for Economic Co-operation and Development (OECD) is an international, intergovernmental economic organisation of 38 countries founded in 1961 to stimulate world trade and economic progress.It aims to shape policies that foster prosperity, equality, opportunity and well-being for all.

Source: Explained | The minimum tax on big businesses