The G20 pact followed on an agreement reached on October 8, 2021, by a group of 136 countries to set the minimum global tax rate for large corporations at 15%. Negotiations for that agreement were led by the Organization for Economic Cooperation and Development (OECD), an intergovernmental organization based in Paris with 38 member countries, and included an earlier phase of talks held in July 2021.
The OECD agreement included the addition of Ireland, Hungary, and Estonia as signatory countries. It is worth noting that Ireland and Hungary have the lowest corporate income tax rates in the European Union. Ireland is a particularly important signatory because international corporations often utilize features of Irish corporate taxation law to minimize their corporate taxes. One method international corporations have used is known as the “Double-Irish with a Dutch Sandwich,” in which they create several corporate subsidiaries located in Ireland. Irish tax law and tax treaties permit these subsidiaries to funnel profits to a zero-tax “tax haven” country. Such cross-border tax minimization strategies are frequently used by large technology companies that can easily do business across borders regardless of where their clients are located.
The OECD said that the deal would cover 90% of the global economy.