More than 130 countries representing more than 90% of the globe’s economic output have agreed on a revised framework to push corporations to pay taxes without encouraging them to relocate to take advantage of certain countries’ lower tax rates, the Associated Press reports.
Announced Friday, the deal by the Paris-based Organization for Cooperation and Economic Development includes a 15% minimum tax rate on multinational corporations which would generate up to $150 billion in tax revenues between the member countries. The system allows countries to tax profits generated within their borders at specific amounts, thereby blocking global corporations from off-shoring the profit to avoid paying taxes where the companies are generating income.
“Today’s agreement represents a once-in-a-generation accomplishment for economic diplomacy,” U.S. Treasury Secretary Janet Yellen said in a statement. She said it would end a “race to the bottom” in which countries outbid each other 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.”
The idea of the framework has the support of the Biden Administration as well as US-based companies like Google and Amazon, who are hit by myriad different laws regarding taxation in the various countries they operate in. The US Congress would have to ratify the trade agreement for it to take effect in the US, and American ratification would go a long way in encouraging other nations to also implement the agreement.
“This accord opens the way to a true tax revolution for the 21st century,” said 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.”