The German parliament has given its approval for the adoption of a global minimum corporate tax, aligning with an international agreement aimed at ensuring that major companies contribute a minimum tax rate of 15%. Under this agreement, multinational corporations will be obligated to pay this specified tax rate on their worldwide profits, irrespective of the location where these profits are generated.

In 2021, nearly 140 countries reached a consensus on an Organisation for Economic Cooperation and Development (OECD) deal, slated for implementation starting next year. The purpose of this agreement is to thwart large corporations, such as Alphabet's Google (GOOGL.O) or Amazon (AMZN.O), from evading taxes through the practice of transferring profits to low-tax jurisdictions.

The newly established regulation is set to be applicable to all companies and sizable domestic groups reporting an annual turnover exceeding 750 million euros ($800 million). This global adjustment is anticipated to yield a substantial increase in tax revenue, with the expectation of raising $220 billion on a global scale. The revenue generated is intended to provide vital financial support for governments worldwide, grappling with financial constraints exacerbated by the aftermath of the COVID-19 pandemic and concurrently navigating the challenges posed by a cost-of-living crisis.

Despite these ambitious goals, the implementation process has encountered impediments in various countries during the ratification phase. The hurdles faced suggest potential complexities and differing perspectives among nations as they navigate the incorporation of this tax initiative into their respective legislative frameworks. This development underscores the intricate nature of global tax reforms and the need for coordinated efforts to overcome challenges in achieving widespread adoption.

In December of last year, member states of the European Union reached a consensus on a shared directive to guarantee the consistent application of the tax across the EU. The directive mandates that each EU country enacts it into national law by the year's end.

The legislation successfully obtained approval in Germany, with backing not only from all parties within the coalition but also from the primary opposition party. This consensus reflects a notable bipartisan alignment on the proposed law, demonstrating a unified stance across political factions within the German legislative landscape. The broad support signifies a shared recognition of the legislation's significance and potential impact, underscoring the collaborative efforts in shaping and endorsing this legal framework.

According to estimates by the Ministry of Finance earlier this year, Germany anticipates additional tax revenue of 910 million euros starting in 2026 due to the implementation of this law. Subsequently, in 2027 and 2028, the projected revenues from the tax are forecasted to amount to 535 million euros and 285 million euros, respectively.

Image source: Reuters