The Global Minimum Corporate Tax

How countries agreed to set a minimum 15 percent tax rate on large multinational companies, why it was needed, and how it works.

For decades, countries competed to attract multinational companies with lower corporate tax rates, and companies shifted profits to low-tax jurisdictions. In 2021, around 140 countries agreed to a major reform through the OECD and G20, including a global minimum corporate tax of 15 percent.

The problem

Tax competition: countries cut tax rates to attract investment, which critics called a “race to the bottom”.
Profit shifting: multinationals booked profits in low-tax places, such as through intellectual property held in tax havens, even when their real activity was elsewhere.

The OECD estimated that profit shifting cost governments 100 to 240 billion dollars a year.

Two pillars

The 2021 agreement had two parts:

Pillar One: reallocating some taxing rights on the largest, most profitable multinationals to countries where their customers are. Its implementation has been slow and faced obstacles.
Pillar Two: a global minimum effective tax rate of 15 percent for multinational groups with annual revenue of at least 750 million euros.

How Pillar Two works

If a multinational pays less than 15 percent tax in a country, other countries can collect a top-up tax to bring its effective rate up to 15 percent. This reduces the benefit of shifting profits to low-tax places. The European Union, the United Kingdom, Japan, South Korea and many others began applying the rules from 2024. The United States did not adopt Pillar Two, and in 2025 the G7 agreed a “side-by-side” arrangement exempting U.S.-headquartered companies from some of its rules.

Profits in a tax haven

A technology company earns 1 billion dollars in profit, much of it booked in a subsidiary in a country with a 0 percent tax rate. Under Pillar Two, the company's home country, or other countries where it operates, can charge a top-up tax to bring its tax on those profits to 15 percent. The tax haven's advantage shrinks.

Debates

Supporters say the minimum tax ends the worst of the race to the bottom and raises revenue. Critics argue 15 percent is too low, that complex rules burden tax authorities, and that developing countries gain less than rich ones. Some low-tax countries have introduced their own top-up taxes so that they, rather than others, collect the revenue.

Thinking the minimum tax sets every company's rate at 15 percent

Countries remain free to set their own rates, and most rates are higher than 15 percent. The rule sets a floor on the effective rate paid by large multinationals, not a single global rate.

Key takeaways

Around 140 countries agreed in 2021 to reform international corporate taxation.
Pillar Two sets a 15 percent minimum effective tax rate for large multinationals.
Top-up taxes reduce the benefit of shifting profits to tax havens.
The U.S. did not adopt it, and debates continue over the rate and fairness to developing countries.