Global Minimum Tax Illustration

Decoding the Global Minimum Tax: What It Means for Big Business and You

Kai Mendoza in Business & Economy December 2025 • 4 min read.

"Navigating the complexities of international tax policy and its impact on global economies."

In an era defined by globalization, the way multinational enterprises (MNEs) are taxed has become a critical issue. Headlines often highlight how major corporations shift profits to low-tax havens, reducing their tax obligations and impacting government revenues worldwide. The numbers are staggering, with estimates suggesting that over a third of all foreign-earned corporate profits are moved to tax havens. This practice has sparked intense debate and prompted action on a global scale.

To combat this, the Organisation for Economic Co-operation and Development (OECD) has spearheaded an initiative to introduce a Global Minimum Tax (GMT). This groundbreaking agreement aims to set a floor for corporate tax rates, ensuring that large multinational companies pay a minimum level of tax regardless of where their profits are booked. Agreed upon by over 130 countries in 2021, the GMT is poised to reshape the landscape of international taxation.

However, the GMT comes with its own set of complexities and challenges. One significant limitation is that it applies only to multinational groups with total annual revenues exceeding 750 million EUR. This threshold leaves a considerable portion of MNE profits outside the scope of the new tax regime, prompting questions about its overall effectiveness and fairness.

What is the Global Minimum Tax and Why Should You Care?

The Global Minimum Tax (GMT) is designed to address the issue of base erosion and profit shifting (BEPS) by large multinational enterprises (MNEs). These are companies that operate in multiple countries, and can therefore exploit differences in national tax laws to minimize their overall tax burden. The GMT aims to set a worldwide minimum corporate tax rate, currently proposed at 15%, for these large MNEs.

The idea is simple: no matter where a multinational company books its profits, it will face a minimum tax rate. If a country's tax rate is below this minimum, other countries can "top-up" the tax to the agreed level. This is designed to discourage MNEs from shifting profits to low-tax jurisdictions simply to avoid taxes.

Reduced Tax Competition: Aims to reduce the incentive for countries to lower their tax rates to attract multinational businesses, preventing a "race to the bottom."
Increased Tax Revenue: Expected to increase tax revenues for governments, which can then be used to fund public services or reduce other taxes.
Fairness: Creates a fairer tax system where large, profitable companies pay their share of taxes, regardless of their location.

Understanding the GMT is crucial because it touches on several key aspects of the global economy. It influences how governments fund public services, how corporations make investment decisions, and how international tax rules impact various countries. Whether you're a business owner, a policymaker, or simply an informed citizen, the GMT is a topic that will continue to shape discussions about fairness, economic policy, and international cooperation.

Looking Ahead: The Future of the Global Minimum Tax

The Global Minimum Tax represents a major shift in international tax policy. While its implementation may face hurdles and require ongoing adjustments, its goals of curbing tax avoidance and promoting fairer competition are clear. As countries continue to refine their approaches and as the global economy evolves, the GMT will remain a central part of the discussion about how to ensure that multinational corporations contribute their fair share to the societies in which they operate. It is essential to stay informed about these developments, as they will undoubtedly shape the future of global business and economic policy.

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This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2404.14302,

Title: A Global Minimum Tax For Large Firms Only: Implications For Tax Competition

Subject: econ.gn q-fin.ec

Authors: Andreas Haufler, Hayato Kato

Published: 22-04-2024

Everything You Need To Know

What is the primary goal of the Global Minimum Tax (GMT)?

The primary goal of the Global Minimum Tax (GMT) is to combat base erosion and profit shifting (BEPS) practiced by large multinational enterprises (MNEs). These MNEs often exploit differences in national tax laws to minimize their overall tax burden. The GMT aims to establish a worldwide minimum corporate tax rate, set at 15%, for these large MNEs, ensuring they pay a minimum level of tax regardless of where they book their profits. If a country's tax rate is below this minimum, other countries can 'top-up' the tax to meet the agreed level.

Who does the Global Minimum Tax (GMT) apply to, and what are the implications of this scope?

The Global Minimum Tax (GMT) applies specifically to multinational groups with total annual revenues exceeding 750 million EUR. This threshold means that a significant portion of MNE profits falls outside the scope of this new tax regime. While the GMT addresses tax avoidance by the largest MNEs, smaller MNEs are not subject to the same rules, which raises questions about the overall fairness and effectiveness of the GMT in addressing global tax avoidance comprehensively.

What are the expected benefits of implementing the Global Minimum Tax (GMT)?

The implementation of the Global Minimum Tax (GMT) is expected to yield several benefits: reduced tax competition among countries, increased tax revenues for governments, and a fairer tax system. The GMT aims to reduce the incentive for countries to lower their tax rates to attract multinational businesses, preventing a 'race to the bottom'. Increased tax revenues can be used to fund public services or reduce other taxes. By ensuring that large, profitable companies pay their share of taxes regardless of their location, the GMT promotes fairness in the international tax system.

How does the Global Minimum Tax (GMT) address the issue of profit shifting by multinational enterprises (MNEs)?

The Global Minimum Tax (GMT) directly addresses profit shifting by setting a minimum corporate tax rate of 15% for large multinational enterprises (MNEs). If an MNE books profits in a low-tax jurisdiction where the effective tax rate is below 15%, other countries have the right to 'top-up' the tax to the minimum level. This mechanism discourages MNEs from shifting profits to tax havens solely to avoid taxes, as the overall tax liability will remain the same regardless of where the profits are booked. This reduces the incentive for MNE's to utilize base erosion and profit shifting (BEPS) tactics.

What challenges and adjustments might arise in the future implementation of the Global Minimum Tax (GMT), and why is it important to stay informed about these developments?

The implementation of the Global Minimum Tax (GMT) may face hurdles and require ongoing adjustments as countries refine their approaches and the global economy evolves. Challenges could include adapting national tax laws to align with the GMT, resolving disputes over tax revenue allocation, and addressing unforeseen economic consequences. Staying informed about these developments is essential because the GMT represents a major shift in international tax policy that will undoubtedly shape the future of global business and economic policy. The GMT influences how governments fund public services, how corporations make investment decisions, and how international tax rules impact various countries.