130 countries sign on to global minimum tax plan, creating momentum for Biden push

President Biden on Thursday celebrated a victory in his drive to make corporations pay a larger share of the cost of government, as 130 countries endorsed a blueprint for a global minimum tax on giant businesses and pledged to work for final approval by the end of October.

The agreement announced by the Organization for Economic Cooperation and Development (OECD) in Paris showcased the president’s preference for patient diplomacy rather than the unilateral moves favored by his predecessor.

Potentially the most significant change in global tax rules in 100 years, the accord is designed to stop countries from competing to lure corporations by offering lower tax rates and to help governments fund their operations at a time of soaring pandemic-related expenses. Biden administration officials also describe the tax plan as a partial remedy for the offshoring of manufacturing jobs that have hollowed out American factory towns and fueled populist resentments.

The president called the deal an example of the “foreign policy for the middle class” that he had promised to deliver, though Republicans were quick to object, and numerous details remain for negotiators to resolve.

“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,” Biden said. “They will no longer be able to avoid paying their fair share by hiding profits generated in the United States, or any other country, in lower-tax jurisdictions. This will level the playing field and make America more competitive.”

The agreement announced Thursday also includes for the first time provisions for taxing the U.S. giants of the Internet economy, such as Google, Facebook and Amazon. In return, European countries that had instituted their own digital taxes are to remove them, though the OECD statement lacked a timetable for action.

Treasury Secretary Janet L. Yellen called the agreement “a historic day for economic diplomacy” and said it represented one of the administration’s core foreign policy goals.

“For decades, the United States has participated in a self-defeating international tax competition, lowering our corporate tax rates only to watch other nations lower theirs in response. The result was a global race to the bottom,” she wrote on Twitter. 

“Today’s agreement by 130 countries representing more than 90% of global GDP is a clear sign: the race to the bottom is one step closer to coming to an end,” she said in the tweet.

The deal was notable for the inclusion of countries that had been skeptical, including China, Russia and India, tax experts said.

Still, a great deal of work remains before a global minimum tax will become a reality. Participating countries must hammer out agreement on numerous details, bringing into alignment national tax systems that differ in important respects.

“It is a very, very broad-brush document. Now we have to work to get the details,” said Catherine Schultz, vice president for tax and fiscal policy at the Business Roundtable.

Every country will not be required to adopt the same 15 percent corporate tax rate. But if a country maintains a lower rate, the United States would be able to impose a compensatory levy on companies headquartered there, achieving the same objective.

The agreement on taxing the profits of Internet companies even where they lack a traditional brick-and-mortar presence seems especially complex. The levy applies to multinational corporations with annual sales of more than 20 billion euros or roughly $24 billion and before-tax profit margins above 10 percent.

“It requires an unprecedented degree of cooperation and coordination among countries, not just in the design of rules but in their application, permanently,” said Barbara Angus, global tax policy leader for Ernst & Young. “There’s a lot of work to be done.”

A handful of countries did not sign on to the blueprint, including Ireland, a nation that has used its 12.5 percent corporate tax rate to attract U.S. technology and pharmaceutical companies over the past half-century. Likewise, Hungary and Estonia abstained, further complicating prospects for full European Union endorsement.

Each of the 130 nations, including the United States, also must convert its endorsement of Thursday’s five-page plan into the nitty-gritty detail of legislation that will rewrite individual tax codes.

The OECD statement said the two-pronged accord would reallocate the right to tax $100 billion in digital companies’ profits from their home nations to countries where they earn money even if they lack a physical presence there. The deal also sets a minimum corporate profits tax of “at least 15 percent,” which is expected to raise $150 billion annually, according to the OECD.