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The Push for a Higher, Worldwide Minimum Tax Rate, Explained

May 3, 2021, 8:46 AM

The U.S. and other countries are striving to reach a deal by this summer on a global minimum tax rate for multinationals, to combat corporate profit-shifting and stop race-to-the-bottom tax competition among countries.

“The dynamic there is very strong,” Pascal Saint-Amans, the OECD’s tax head, said Friday of the international negotiations over a minimum tax agreement.

The U.S. enacted its own minimum tax—known as GILTI, for global intangible low-taxed income—in its 2017 tax overhaul, set at 10.5%. The Biden administration wants to double that rate and toughen the rules. Meanwhile, the Organization for Economic Cooperation and Development is leading talks among 139 countries trying to reach agreement on a global minimum tax, part of the group’s work on a larger plan to revamp international tax rules.

Saint-Amans said Friday that he expected agreement in July on the larger plan, with further details on implementation worked out by October.

Here’s how the OECD and U.S. positions on a global minimum tax developed.

But whether either side will succeed remains to be seen. Biden’s plan to hike the U.S. rate to 21%, raises the risk that some countries won’t go along with such a high rate in the OECD talks. Countries including Ireland, which has a 12.5% corporate income tax rate, have argued against a higher rate.

“U.S. partners may end up at a rate which would be more than what they’d initially imagined,” Saint-Amans said.

It’s unclear where the rate will land in a final deal.

If the U.S. and the rest of the world end up too far apart on their minimum rates, it could put American businesses at a competitive disadvantage, opponents to the Biden plan argue. Any U.S. tax changes would require congressional approval.

Here’s how a global minimum tax would work.

To contact the reporters on this story: Michael Rapoport at mrapoport@bloombergindustry.com; Isabel Gottlieb in Washington at igottlieb@bloombergtax.com

To contact the editors responsible for this story: Meg Shreve at mshreve@bloombergindustry.com; David Jolly at djolly@bloombergindustry.com

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