What You Need to Know
- The deal includes a 15% minimum rate for corporations.
- The Group of 20 looks to approve the plans at meetings next week and a summit at the end of the month.
- Republicans warned the Biden administration against “circumventing the Senate’s constitutional treaty authority.”
A vast overhaul of corporate taxation won support from 136 countries, as governments resolved key differences over the level of a global minimum rate and an end to new digital taxes that the U.S. has deemed discriminatory.
After years of missed deadlines and wrangling over how to handle tech firms such as Facebook Inc. and Alphabet Inc.’s Google, Friday’s deal included a 15% minimum rate for corporations and the main parameters of how much profits of the 100 or so biggest multinationals would be taxed in more countries: 25% of profits over a 10% margin.
The deal moves a step closer to ending what U.S. Treasury Secretary Janet Yellen calls a global “race to the bottom” among countries luring companies with ever-lower tax rates.
The Group of 20 looks to approve the plans at meetings of finance officials next week and a summit at the end of the month. The Organization for Economic Cooperation and Development, which has chaired the talks, is aiming for a multilateral convention next year and implementation in 2023. That could still prove ambitious in some countries, not least the U.S.
The OECD said a minimum rate could ultimately raise government incomes by $150 billion a year, while new rules would reallocate $125 billion of profits to be taxed in nations where big corporations generate revenue but may have little physical presence.
Parties to the deal include all members of the Group of 20, European Union and OECD, the Paris-based organization announced Friday.
In addition, countries agreed not to impose new digital services taxes as of Friday, though the deal didn’t include specifics on when existing levies will be repealed.
Friday’s agreement marks a victory for global negotiations that almost ground to a halt during Donald Trump’s presidency and spiraled into trade tensions with unilateral measures and threats of retaliatory tariffs. A final deal would offer the promise of new revenues for governments facing huge debt burdens after the Covid-19 pandemic.
“The alternative to this happening is that we see the growth of unilateral tax measures, we see the slow erosion of our global tax architecture,” Irish Finance Minister Paschal Donohoe, whose government made a crucial last-minute concession to sign up to the deal, told Bloomberg Television on Friday before the OECD announcement. “All of those things would bring additional risks, additional instability.”
The latest accord builds on a preliminary July deal, when governments agreed on key aspects of the plan for the first time — including which companies would be subject to the profit reallocation rules.
The years-long talks at the OECD are split into two so-called pillars. The first deals with questions of allocating profits for tax, while Pillar Two seeks to create a global minimum corporate tax rate.
Of the countries involved in the talks, Kenya, Nigeria, Pakistan, and Sri Lanka haven’t signed the deal, the OECD said.
The accord “is a raw deal for developing countries” who will get “next to nothing in extra direct revenue from this agreement,” Didier Jacobs, tax policy lead for poverty-fighting group Oxfam America, said in a statement.