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Top financial officials representing much of the world economy supported a comprehensive international tax revision that included a 15% global minimum corporate tax to deter large corporations from resorting to low-rate tax havens.
The finance ministers of the 20-nation group approved the plan at a meeting in Venice on Saturday.
US Treasury Secretary Janet Yellen said the proposal would end the “self-defeating international tax competition” that countries have cut rates for years to lure companies. He said it was “a race no one could win”. What it did instead was deprive us of the resources we needed to invest in our people, workforce and infrastructure.”
Next steps include further work on key details at the Paris-based Organization for Economic Co-operation and Development, followed by a final decision at the Group of 20 presidents and prime ministers meeting in Rome on 30-31 October. Italy hosted the meeting of the finance minister in Venice as it holds the rotating presidency of the G-20, which accounts for more than 80% of the world economy.
Implementation, which is expected to take place as early as 2023, will depend on actions at the national level. Countries would include the minimum tax requirement in their laws. Other parts may require a formal agreement. The draft proposal was approved on 1 July in talks between more than 130 countries brought together by the OECD.
The US already has a minimum tax on overseas earnings, but President Joe Biden has suggested roughly doubling the rate and increasing it to 21%; this will more than fit the proposed global minimum. Increasing the rate is part of a broader proposal to fund Biden’s business and infrastructure plan, raising the local corporate tax rate from 21% to 28%.
Yellen said she was “very optimistic” that Biden’s infrastructure and tax legislation “will include what we need to comply with the US minimum tax proposal.”
Republicans in Congress have expressed their opposition to the measure. Representative Kevin Brady from Texas, a top Republican on the Tax-Writing Ways and Means Committee, denounced the OECD agreement, saying, “This is an economic capitulation to China, Europe and the world that Congress will reject.”
The international tax proposal aims to deter the world’s largest companies from using accounting and legal schemes to shift their profits to countries where there is little or no taxation and where the company may do little or no business. Below the minimum, companies evading taxes abroad would pay them at home. This would remove incentives to use or set up tax havens.
Between 2000 and 2018, US companies reserved half of all foreign profits in seven low-tax jurisdictions: Bermuda, Cayman Islands, Ireland, Luxembourg, Netherlands, Singapore and Switzerland.
The second part of the tax scheme is to allow countries to tax a portion of the profits of companies that make profits without a physical presence, such as online retailing or digital advertising.
This part came about after France and other countries imposed a digital services tax on US tech giants like Amazon and Google. The US government views these national taxes as unfair trade practices and threatens to retaliate against these countries’ imports into the US through higher import duties.
Under the tax treaty, these countries would theoretically have to forgo or avoid national taxes in favor of a single global approach to ending trade disputes with the United States.
U.S. tech companies would only be faced with a single tax regime, rather than multiple different national digital taxes.
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