By Leigh Thomas

PARIS, (Reuters) – A worldwide agreement has been made by 136 nations to require large companies to pay a minimum 15% tax rate and make it easier for them not to be taxed. This was announced Friday by the Organisation for Economic Cooperation and Development.

The OECD stated that four countries – Nigeria, Sri Lanka, and Nigeria – have not joined yet the agreement but said the combined countries responsible for the accord accounted to more than 90% of the world’s economy.

The main points of this accord are:

WHY IS A MINIMUM GLOBE TAX IMPORTANT?

Many governments are trying to dissuade multinationals, despite their profits and tax revenue shifting to low-tax countries after the COVID-19 crises.

Intangible income such as software, drug patents and royalty on intellectual property is increasing in number. This allows companies to pay lower taxes than their home country.

To attract foreign investment, the minimum tax and other provisions are intended to end decades of tax competition among governments.

HOW DOES A DEAL WORK

Global minimum taxes would apply for overseas profits from multinational companies with sales exceeding 750 millions euros (868 million).

Although local governments may still determine the corporate tax rate, companies that pay lower taxes in particular countries could be “topped up” by their home governments to reach the minimum 15%. This would eliminate the possibility of profits being shifted.

The second part of the overhaul allows countries with revenues to tax 25% of large multinationals’ excess profits. This is defined as profit exceeding 10%.

WHAT IS NEXT

After Friday’s technical agreement, it is now that the Group of 20 financial powers will officially endorse the deal. This would pave the way to its adoption by the G20 leaders in October.

Nonetheless, many questions still remain regarding the U.S.’s current position. It is largely dependent on a domestic tax overhaul that the Biden Administration wants to bring through Congress.

According to the agreement, countries must pass it by law by 2022 in order to make it effective for 2023. This is a tight timeline considering previous international tax arrangements that took several years to put into effect.

Countries with national digital service taxes in place within the last few years will be required to remove them.

WHAT IS THE ECONOMICAL IMPACT OF A BANKRUPTCY?

The OECD has steered these negotiations and estimates that the minimum tax would generate an additional $150 billion annually in global tax revenue.

The countries in which the profits exceed $125 billion will see their taxation rights transferred to those countries.

Economists believe that multinationals will be more inclined to bring capital back to the country where they are headquartered, thereby giving an economic boost.

However, the agreement includes a number of exceptions and deductions that are intended to minimize the negative impact on countries with low taxes like Ireland where many U.S.-based groups have their European operations.

($1 = 0.8642 euros)