Consumers everywhere are likely to feel the effects of the global minimum tax set to be finalised at the end of October.

Last week, the Organisation for Economic Co-operation Development (OECD) announced that 136 countries have agreed to the global minimum corporate tax of 15 per cent.

The deal should be cemented by the Group of 20 meetings in Rome. However, the OECD said that countries are aiming to bring the agreement into effect in 2023.

The deal follows concern that multinational companies are re-routing their profits through low tax jurisdictions. It’s still not clear if Jamaica was a part of the deal.Kenya, Nigeria, Pakistan and Sri Lanka are yet to sign on based on international reports. It’s also reported that Ireland, Hungary and Estonia, which all have corporate tax rates below 15 per cent and resisted the plan at first, are all now on board.

The historic agreement should see big companies paying a fairer share of taxes. According to the OECD, it should raise about US$150 billion per year in additional global tax revenues, which can be used to help countries bolster their economies as they recover from COVID-19.

It will affect firms with global sales above 20 billion euros and profit margins above 10 per cent. A quarter of any profits they make above the 10 per cent threshold are to be reallocated to the countries where they were earned, and taxed there. 

Consumers may feel it

Speaking on Taking Stock with Kaliah Reynolds, wealth advisor at Ideal Portfolio Services Dwayne Taylor agreed with US President Joe Biden that the deal will level the playing field. However, he argued that the corporations may not even feel the impact and instead pass on those costs to customers.

“Yes, they will have to pay more taxes but the truth is if I’m a big company and have to pay more, I may translate that additional cost onto my consumers,” he said.

Citing Amazon as an example, Taylor said that customers are likely to be willing to foot any additional cost to use the service which has become essential especially during the pandemic.

“The reality is like any other company, they (big corporations) will pivot. During the pandemic we learned that companies don’t just stay in the same position if it is that they’re faced with an obstacle; they are going to pivot,” he said.

“We’re going to be paying more, and I think from the beginning of the discussion we’ve been talking about consumers’ ability to purchase things and that’s essentially weakening because of different things like inflation and now this discussion of tax reform,” added Taylor.

Taylor said the deal could also have deeper implications for medium-sized companies in developing countries that had lower corporate tax rates.

If those countries sign on to the deal, that would see them also paying more but unlike the big digital companies like Facebook, Taylor said they would find it difficult to pass on the additional costs to consumers while also trying to build out their operations and customer base.

“We have to watch and see how it will affect us but I’m interested to see how it will play out,” said Taylor. 

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