Australia has joined 135 countries in agreeing to impose a minimum corporate tax rate of 15 per cent on international companies, as global tax authorities attempt to glean tax revenue from digital giants.
The milestone agreement comes after four years of discussions among Organisation for Economic Cooperation and Development (OECD) countries, with member states hoping the tax floor will limit the ability of large companies like Google and Facebook to shift their profits to low-taxing countries like Ireland.
"Today's agreement will make our international tax arrangements fairer and work better," OECD Secretary-General Mathias Cormann said in a statement.
"This is a major victory for effective and balanced multilateralism."
The Paris-based OECD predicts the minimum rate will allow countries to collect AU$205 billion in new tax revenues. Additionally, around $171 billion of profit will be shifted to new countries for taxing rights.
Digital giants will see a quarter of any profits made above 10 per cent reallocated to the countries where the profits were derived for taxation.
The deal will effectively cover 90 per cent of the global economy and deliver a “fairer tax system”, according to UK Chancellor Rishi Sunak.
The minimum tax rate is expected to come into effect from 2023, although some countries warn the deadline is too soon.
"As of this morning, virtually the entire global economy has decided to end the race to the bottom on corporate taxation,” US Treasury Secretary Janet Yellen said.
"Rather than competing on our ability to offer low corporate rates, America will now compete on the skills of our workers and our capacity to innovate, which is a race we can win."
'Mockery of fairness': Oxfam blasts plan
However, charitable organisation Oxfam International dubbed the agreement a “mockery of fairness”.
It said the 15 per cent floor, which is significantly lower than the 23.5 per cent average corporate tax rate in industrialised countries, will rob poorer countries of tax revenue.
Oxfam is calling for a global minimum corporate tax rate of 25 per cent or more, which would allow developing countries to tax international giants at heavier rates without running the risk of them shifting offices, taking jobs and investment with them.
"This deal is a shameful and dangerous capitulation to the low-tax model of nations like Ireland. It is a mockery of fairness that robs pandemic-ravaged developing countries of badly needed revenue for hospitals and teachers and better jobs,” Oxfam tax policy lead Susana Ruiz said
“The world is experiencing the largest increase in poverty in decades and a massive explosion in inequality but this deal will do little or nothing to halt either. Instead, it is already being seen by some wealthy nations as an excuse to cut domestic corporate tax rates, risking a new race to the bottom.”
Oxfam finds that developing nations will receive around 0.025 per cent of their collective GDP in additional tax revenue.