• Australia is among 130 countries which have signed onto a global tax initiative that requires a 15% minimum tax from multinational corporations.
• The Organisation for Economic Co-operation and Development (OECD) said closing some of the most notorious tax loopholes in the world would generate an estimated $US150 billion in additional tax revenue each year.
• Australia has been seeking to crack down on tax avoidance by multinationals since 2017, but has struggled to raise revenue from tech giants like Apple, Facebook and Google.
• Visit Business Insider Australia’s homepage for more stories.

Australia has signed onto a new global tax floor initiative that seeks to halt a “race to the bottom” by requiring a 15% minimum tax for corporations globally.

The agreement by the Organisation for Economic Co-operation and Development (OECD) was initially developed at the G7 last month as a means of better managing a tax which represents 90% of global GDP, with Australia one of the 130 nations that have signed on so far.

Australian Treasurer Josh Frydenberg, along with former Finance Minister and now OECD Secretary-General Mathias Cormann, have been involved in negotiations.

The initiative means the country could gain up to $3 billion in extra tax revenue per year; however while it will go after tech giants such as Google and Facebook, the agreement allows Australia to partially exempt mining companies.

The new two-pillar plan was designed to reform international taxation rules, with the goal of ensuring that multinational enterprises with revenues of $1.2 billion pay a fair share of tax wherever they operate.

US Secretary of Treasury Janet Yellen said on Friday that lower tax rates had both failed to attract new business and deprived countries of funding for investments in nation-building projects like infrastructure.

“The race to the bottom is one step closer to coming to an end,” Yellen said in a statement announcing the agreement.

Cormann said the agreement was a significant step toward reigning in tech giants like Facebook and Google’s profit-shifting practices.

“After years of intense work and negotiations, this historic package will ensure that large multinational companies pay their fair share of tax everywhere,” he said.

“This package does not eliminate tax competition, as it should not, but it does set multilaterally agreed limitations on it.”

At the G7 political forum of wealthy nations held in early June, finance ministers from the group first agreed on the landmark plan to tackle tax abuses by some of the world’s biggest multinationals, as well as establish a minimum global corporation tax for the first time.

It sought to address the corporate profit-shifting that has deprived national budgets of billions of dollars in revenue.

Australia has been seeking to crack down on tax avoidance by multinationals since 2017 by charging a 40% tax on diverted profits along with tax office litigation, which led to a payment of $340 million through a case against energy corporation Chevron.

However it has struggled to raise revenue from tech giants such as Apple, Facebook and Google. Collectively, the companies paid $216 million in tax on $11 billion of revenue raised in Australia between 2018 and 2019.

Under Pillar One, taxing rights on more than $100 billion of profit will be reallocated to national market jurisdictions.

Additionally, companies with revenues of more than $30 billion — most of them digital companies — will see their excess profits taxed based on a complex formula that uses the value of assets and staff numbers in the tax jurisdiction it operates in.

This will essentially re-allocate some of the taxing rights over big tech companies to the markets where they have business activities.

One exemption to the newly-agreed initiative will be mining companies because of their reliance on physical extraction in order for tax to occur.

Another factor of the multilateral design of the two-pillar agreement is its assurance the initiative will not lead to trade wars that may have been sparked from tax changes under unilateral trade agreements.

It also accommodates the various interests, such as small economies and developing jurisdictions.

Exemptions to the first pillar have already arisen.

Britain has successfully argued that London’s financial services industry should be excluded from the proposed new global tax system, and a small group of the Framework’s 139 members have not yet joined the statement, including Ireland and some Caribbean countries — a factor that could weaken the effectiveness of its purpose of quashing profit-shifting to low-tax countries.

The OECD has said closing some of the most notorious tax loopholes in the world would generate an estimated $US150 billion in additional tax revenue each year.

“It is in everyone’s interest that we reach a final agreement among all Inclusive Framework Members as scheduled later this year.” Cormann said.

The final design is likely to be presented at the G20 Finance Ministers meeting in October.

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