An effort to push the most sweeping changes to the global tax system in a century gained significant momentum on Thursday when 130 nations agreed to a blueprint in which multinational corporations would pay an appropriate share of tax wherever they operate.
The deal approaches a goal that had proved elusive for the global community for decades as countries tried to prevent businesses from shopping for the jurisdiction with the lowest rates — what Treasury Secretary Janet L. Yellen called a 30-year “race to the bottom” on corporate tax.
The result of the negotiations, overseen by the Paris-based Organization for Economic Cooperation and Development and revived this year by President Biden, is also remarkable because it includes China, Russia and India among the signatories — large economies that had been wary of a tax overhaul.
The conceptual framework includes a 15 percent minimum corporate tax rate, which had been proposed by the United States, and rules that would force technology giants like Amazon and Facebook and other big global businesses to pay taxes in countries where their goods or services are sold, even if they have no physical presence there
A final accord would reshape global commerce and shore up finances that have deteriorated in numerous countries after more than a year of grappling with the pandemic. It could also end a brewing global trade war over the taxation of companies like Amazon, Google, Facebook and others that earn revenue online across the globe. The Trump and Biden administrations have threatened retaliatory tariffs as India, Britain, France and others have introduced taxes on digital services from American companies.
“Today marks an important step in moving the global economy forward to be more equitable for workers and middle-class families in the United States and around the world,” President Biden said in a statement.
“With a global minimum tax in place, multinational corporations will no longer be able to pit countries against one another in a bid to push tax rates down and protect their profits at the expense of public revenue,” he said.
The blueprint was originally approved by Group of 7 nations in June. Ministers from the Group of 20 major economies will hash out further details next week at a summit in Italy.
The deal comes after four years of fraught international negotiations. If enacted, it would essentially stop countries from slashing their tax rates to lure businesses, a move that the United States and other high-tax jurisdictions say has deprived them of funding for crucial investments like infrastructure and education.
Critical details still need to be worked out, including how to execute the plan, which is expected to be finalized in October, the economic cooperation organization said. Those details could also determine which American multinationals are subject to the new rules on digital taxation, which exclude financial services companies and those in extractive industries like oil and gas. And after that, new digital taxes and global corporate minimum taxes would still need to be approved by Congress and national legislatures.