The agreement ensures big multinational companies pay their fair share of tax in places where they actually make money selling products and services.

Secretary General of the Organization for Economic Cooperation and Development (OECD) Mathias Cormann delivers an inaugural speech at the Organization for Economic Cooperation and Development’s Ministerial Council Meeting in Paris on October 5, 2021.
Secretary General of the Organization for Economic Cooperation and Development (OECD) Mathias Cormann delivers an inaugural speech at the Organization for Economic Cooperation and Development’s Ministerial Council Meeting in Paris on October 5, 2021. (AFP)

A global deal to ensure big companies pay a minimum tax rate of 15 percent and make it harder for them to avoid taxation has been agreed by 136 nations, the Organisation for Economic Cooperation and Development (OECD) has said.

"This is a major victory for effective and balanced multilateralism," said OECD Secretary-General Mathias Cormann in a statement on Friday after Ireland, Hungary and Estonia joined the deal, leaving Pakistan, Nigeria, Kenya and Sri Lanka as the last holdouts.

The agreement aims to end a four-decade-long "race to the bottom" by governments that have sought to attract investment and jobs by taxing multinational companies only lightly and allowing them to shop around for low tax rates.

Negotiations had been going on for four years, moving online during the pandemic, with support for a deal from US President Joe Biden and the costs of Covid-19 giving additional impetus in recent months. 

READ MORE: Deal on minimum global corporate tax reached - with caveats

Some hold-outs convinced

The agreement will set a minimum corporate tax rate of 15 percent and let governments tax a greater share of foreign multinationals' profits.

It aims to prevent big groups from booking profits in low-tax countries like Ireland regardless of where their clients are, an issue that has become ever more pressing with the rise of tech giants that easily do business across borders.

Ireland and Estonia dropped their objections earlier on Thursday while Hungary said on Friday that it would sign up.

Finance Minister Mihaly Varga told reporters Hungary's demand for a 10-year transition period had been met "so Hungary could join the deal with a good heart".

"This is a difficult and complex decision but I believe it is the right one," Irish Finance Minister Paschal Donohoe said after Ireland agreed to give up its prized 12.5 percent tax rate for large multinationals.

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Concerns from developing countries

Announcing Tallinn's support, Estonian Prime Minister Kaja Kallas said the minimum tax would change nothing for most Estonian entrepreneurs.

But some developing countries seeking a higher minimum tax rate say their interests have been sidelined to accommodate the interests of richer countries like Ireland, which had refused to sign a deal with a minimum tax rate higher than 15 percent.

Argentine Economy Minister Martin Guzman said on Thursday that proposals on the table forced developing countries to chose between "something bad and something worse".

Holdouts cannot block the deal from going ahead, but they do risk not reaping benefits from it, meagre though they may be.

While Argentina reluctantly signed up to a previous version of the deal, Kenya and Nigeria have both held out while India, which had also backed the previous version, has since flagged concerns.

Countries that back the deal are supposed to bring it onto their law books next year so that it can take effect from 2023, which many officials close to the talks describe as extremely tight.

READ MORE: G20 ministers approve deal to tax multinational firms

Source: Reuters