More than 130 countries have agreed to implement a 15% minimum corporate tax in a bid to force large multinationals to pay taxes in countries where they operate — not just where they have their headquarters.
The deal — designed to deter multinationals from stashing profits in low-tax countries — was announced on Friday comes after G7 nations backed the tax in June.
It follows years of disagreements.
The 136 countries involved in the deal represent 90% of the global economy.
The Paris-based Organization for Cooperation and Economic Development (OECD), which hosted the talks that led to the deal, expects the minimum tax will see governments pocket an additional €129 billion annually.
Bruno Le Maire, French Finance Minister said "This agreement opens the way to a true tax revolution for the 21st century. It is a tax revolution because we will not go back. It is a tax revolution because it creates more justice in terms of taxation. Finally, the digital giants will pay their just share in taxes in the countries - including France - where they profit."
US Treasury Secretary Janet Yellen said in a statement that the deal "represents a once-in-a-generation accomplishment for economic diplomacy" and that it would end "a race to the bottom" in which countries outbid each other with lower tax rates.
“Rather than competing on our ability to offer low corporate rates,” she said, “America will now compete on the skills of our workers and our capacity to innovate, which is a race we can win."
The big U.S. tech companies like Google and Amazon have supported the OECD negotiations. One reason is that countries would agree to withdraw individual digital services taxes they have imposed on them in return for the right to tax a part of their earnings under the global scheme.
That means the companies would deal with just one international tax regime, not a multitude of different ones depending on the country.
However, Oxfam International says this new deal is a mockery of fairness as it says the deal has "practically no teeth" after a ten-year grace period was added.
It says developing countries are more heavily reliant on corporate tax than OECD nations.