Over 130 countries have come together to establish a new global corporate tax agreement. The deal, which was announced on Friday, requires a 15% minimum corporate tax rate for the multinational companies with the largest revenues.
The plan is designed to stop huge companies from hiding out in low-tax countries. The deal would also enable some countries to tax companies that are located in other parts of the world that make money through online retailing and other methods.
The agreement was decided on between 136 countries comprising 90% of the global economy. It was announced by the Organization for Cooperation and Economic Development, which hosted the meetings that led to the decision. The OECD said that some decisions, like the minimum tax rate, could bring in $150 billion for countries around the world.
“Today’s agreement represents a once-in-a-generation accomplishment for economic diplomacy,” U.S. Treasury Secretary Janet Yellen said in a statement. She added that it would stop a “race to the bottom” where countries compete for corporations’ presence in their nations with lower tax rates.
“Rather than competing on our ability to offer low corporate rates,” she said, “America will now compete on the skills of our workers and our capacity to innovate, which is a race we can win.”
Global minimum tax rate could be a gamechanger for both countries and companies
But the deal has not gone into effect just yet. The United States will need to approve related tax legislation proposed by President Joe Biden, which is crucial for the entire effort since the U.S. is the headquarters of the majority of the world’s biggest multinational companies. If Congress rejects the proposal the whole project could be thrown into uncertainty.
Some of the U.S.’s biggest tech companies, like Google and Amazon, have openly embraced the OECD project. The agreements partially appeal to companies because countries would have to withdraw individual digital services taxes in order to tax the companies under the global plan.
It also means that the companies would only have to engage with one international tax system instead of various unique ones for each country.
“This accord opens the way to a true tax revolution for the 21st century,” said the French Finance Minister Bruno Le Maire. “Finally the digital giants will pay their just share in taxes in the countries — including France — where they produce.”
A few countries are averse to the agreement and have refused to participate. Developing countries like Nigeria, Kenya, Sri Lanka and Pakistan have declined to be part of the project. Anti-poverty and tax advocates who have analyzed the agreement have found that it would largely benefit already wealthy countries and has less to offer to developing countries who are reliant on corporate taxes.