The agreement seeks to set a global minimum tax for tax avoidance; Officials see challenges in implementing agreement
The reform sets a global minimum corporate tax of 15%, intended to prevent companies from exploiting low-tax jurisdictions.
It also seeks to address the challenges posed by companies, especially technology giants, who register intellectual property that drives their profits anywhere in the world. As a result, many of those countries set up operations in low-tax countries, such as Ireland, to reduce their tax bills.
The new agreement, if implemented, would split existing tax revenues in a way that favors the countries where customers are based. The largest countries, as well as low-tax jurisdictions, must implement the agreement to significantly reduce tax avoidance.
Overall, the OECD estimates that the new rules could give governments around the world an additional $150 billion in revenue annually.
The leaders of the Group of 20 major economies are expected to meet in Rome later this month. Thereafter, signatories would have to change their national laws and amend international treaties to put the overhaul into practice.
The signatories set 2023 as the implementation target, which tax experts described as an ambitious target. And while the agreement would survive the failure of a smaller economy to pass new laws, it would be greatly weakened if a larger economy—such as the US—fails.
“We are counting on all the big countries to be able to move at almost the same pace together,” said Irish Finance Minister Pascal Donohoe. “If a major economy does not find itself in a position to implement the agreement, it may matter to other countries. But that may not be clear for some time.”
Congress’s work on the deal will be divided into two phases. First, this year, the minimum tax on foreign income of American companies will have to be changed, which the US approved in 2017. To comply with the agreement, Democrats intend to raise the rate—the House plan demands 16.6%—and implement it. on a country-by-country basis. Democrats can pursue this on their own and they are trying to do so as part of President Biden’s broader policy agenda.
The second phase will be difficult and the timing is not fixed. That’s where the US would have to agree to change the rules for an international agreement where income is taxed. Many analysts say this would require a treaty, which would require a two-thirds vote in the Senate and thus some support from Republicans. Treasury Secretary Janet Yellen has been more circumspect about the program and procedural details of this second phase.
—Sam Schechner contributed to this article in Paris.