An effort to push the most sweeping changes to the global tax system in a century gained significant momentum Thursday when 130 nations agreed to a blueprint in which multinational corporations would pay a fair 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 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 Joe 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 framework includes a 15% 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.
Closing some of the most notorious tax loopholes in the world will generate an estimated $150 billion in additional tax revenue each year, the OECD said, reshaping global commerce and shoring up finances that have deteriorated in numerous countries after more than a year of grappling with the pandemic.
A final deal 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.
Critical details still need to be worked out, including how to execute the plan, which is expected to be finalized in October, the OECD said. And after that, new digital taxes and global corporate minimum taxes would still need to be approved by Congress and national legislatures.
Smaller nations that have long benefited from being tax havens are holding out for better terms.
Ireland in particular has resisted a 15% minimum tax and refused to sign Thursday’s deal.
Breezy Caribbean island tax havens also declined to sign on, including Barbados, St. Vincent and the Grenadines. Hungary and Estonia, which are keen to preserve their ultralow tax regimes, joined the dissenters, as did Kenya, Nigeria, Peru and Sri Lanka.