Treasury Secretary Janet Yellen announced on July 1, 2021 that a group of 130 nations has agreed to a global minimum tax on corporations, part of a broader agreement to overhaul international tax rules.
If widely enacted, the GMT would effectively end the practice of global corporations seeking out low-tax jurisdictions like Ireland and the British Virgin Islands to move their headquarters to, even though their customers, operations and executives are located elsewhere.
“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: Who could lower their corporate rate further and faster? No nation has won this race,” said Yellen in a statement on the accord.
“Today’s Agreement By 130 Countries Representing More Than 90 Percent Of Global GDP Is A Clear Sign: The Race To The Bottom Is One Step Closer To Coming To An End,”
Nine countries did not sign; this group included the low-tax European Union members Ireland, Estonia, and Hungary as well as Peru, Barbados, Saint Vincent and the Grenadines, Sri Lanka, Nigeria, and Kenya.
India, China, and Turkey, which had been holding out at some point in the negotiations, joined in the agreement.
The world's financial leaders will endorse on July 9-10 a deal setting a global minimum corporate tax and call for technical work to be finished so they can approve the framework for implementation in October, their draft communique showed. The plan is for the new rules to be implemented by 2023, a statement from countries that backed the agreement said.
The deal also reportedly includes a framework to eliminate digital services taxes, which targeted the biggest American tech companies.
In Their Place, Officials Agreed To A New Tax Plan That Would Be Linked To The Places Where Multinationals
Are Actually Doing Business, Rather Than
Where They Are Headquartered.
Much of the groundwork for adopting a GMT has already been laid by the Organization for Economic Cooperation and Development, which released a blueprint last fall outlining a two-pillar approach to international taxation.
The OECD Inclusive Framework on Base Erosion and Profit Shifting, known as BEPS, is the product of negotiations with 137 member countries and jurisdictions.
Yellen’s Announcement Did Not Include The Actual Rate At Which The GMT Would Be Set, But The Biden Administration Has Pushed For At Least 15%.
G-20 finance ministers and central bank governors are scheduled to meet in Venice, Italy, later this month, and the international tax plan is expected to be high on the agenda. The G20 finance ministers did meet on July 10, 2021 and they endorsed the key components of the two-pillar proposals to address today's tax challenges. The revised version of Pillar One, which deals with the re-allocation of taxing rights, will affect the world's largest and most profitable companies (global turnover in excess of EUR 20 billion and a profit margin of at least 10%). Pillar Two, which introduces a global minimum effective tax rate of at least 15%, will apply to all MNEs with a global turnover of at least EUR 750 million.
While the G20 endorsement of the revised proposals was expected, the formal seal of approval from the G20 finance ministers is an important milestone for the two-pillar solution, giving the proposals further impetus. endorsed the key components of the two-pillar proposals to address today's tax challenges.
The revised version of Pillar One, which deals with the re-allocation of taxing rights, will affect the world's largest and most profitable companies (global turnover in excess of EUR 20 billion and a profit margin of at least 10%). Pillar Two, which introduces a global minimum effective tax rate of at least 15%, will apply to all MNEs with a global turnover of at least EUR 750 million.
The GMT agreement represents a key part of what President Joe Biden has called “a foreign policy for the middle class.”
The strategy, devised in part by Biden’s national security adviser Jake Sullivan, emphasizes how foreign policy and domestic policy can be integrated into a new middle ground between the traditional conservative and liberal approaches to global affairs.
“Foreign policy for the middle class” aims to ensure that globalization, trade, human rights and military might are all harnessed for the benefit of working Americans, not solely for billionaires and multinational corporations, but not for abstract ideological reasons either.
Read more at: Tax Times blog