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Some 130 countries have supported a global minimum tax as part of a global effort to prevent multinational companies from evading tax by shifting their profits to countries at low rates.
The deal announced Thursday by the Organization for Economic Co-operation and Development also plans to tax the world’s largest companies in countries where they make profits through online activities but may have no physical presence.
The deal followed a proposal by President Biden for a rate of at least 15%, a move that propelled talks towards meeting a deadline for an agreement by the middle of this year. The deal will now be discussed by the Group of 20 countries in meetings later this year with the hope of finalizing details in October and implementing the deal in 2023.
Under the agreement, countries could tax the foreign profits of their companies if they are not taxed through subsidiaries in other countries. This would remove the incentive to use accounting and legal systems to shift profits to low-rate countries since the profits would be taxed at home anyway.
Not all of the 139 countries that joined the talks signed the accord. The proposal to tax countries where they have sales but no physical presence excluded extractive companies such as oil and mining and regulated banks.
The deal now needs more technical work to complete the details and be considered by the Group of 20 countries, which make up about 80 percent of the global economy. More discussions are expected at the G-20 finance ministers meeting in Venice next week, and then at the full G-20 summit of country leaders in October. The proposal to tax companies where they have income but no physical presence would force countries to sign a multilateral convention.
In the United States, Biden has proposed a minimum rate of 21% on overseas profits of large American companies to deter them from shifting their profits to tax havens. Biden’s U.S. tax must pass Congress first, where the Democratic president has only a slim majority.
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