Years of negotiations have produced an agreement to overhaul the global tax system in ways that will change where and how some of the world’s largest companies are taxed. Getting almost 140 nations on board was a huge breakthrough, but the fight isn’t over.
1. What are the highlights of the deal?
For the first time, there would be a minimum corporate tax rate applied
2. Who has signed on?
The Group of 20 nations -- which represent about 90% of the global economy -- finalized key details in October. So far, 136 countries have signed on, out of 140 countries involved in negotiations overseen by the Organization for Economic Cooperation and Development, with Kenya, Nigeria, Pakistan, and Sri Lanka holding out. Crucially, those now on board include
3. How would the global minimum tax work?
Countries would apply the minimum tax to nearly any multinational company making more than 750 million euros ($870 million), though some kinds of income will be exempt from that calculation. Primarily, the rules will allow a country where a company is headquartered -- call it Country A -- to “top up” its taxation of the company if it’s paying less than 15% in Country B. For example, if the company is effectively paying a 12.5% tax in Country B, Country A can collect the extra 2.5%. There is also a backstop in the rules for when countries don’t apply the minimum tax.
4. How would the tax reallocation work?
It would affect multinationals that make more than 20 billion euros a year in revenue and have a profit margin above 10%, exempting companies in financial services and extractive industries such as mining. They won’t necessarily pay more tax; rather, the taxes they pay would be divided among more places. This change will target about 100 of the world’s largest and most successful multinationals, including companies such as Amazon, Facebook and Google that can sell their digital products into countries without establishing the physical presence that creates the basis for corporate income tax. Under the new system, countries where those companies have consumers or users would get the right to tax 25% of profits exceeding a 10% margin -- and companies would be compensated for the tax they’re paying in additional locations by the countries where they’re currently paying it. Critically, countries also agreed to immediately halt all new
5. Why is a resolution on digital taxes so important?
Seeing an end to digital taxes has been a key aim throughout the negotiations for the U.S., which labels the measures as discriminatory against its own companies. Some nations have imposed these taxes on local sales of companies such as Facebook, Amazon and Google -- grabbing a bigger share of the pie. France led the way with a tax on tech giants’ revenues, and other countries have followed. The U.S. now has retaliatory trade measures against Austria, India, Italy, Spain, Turkey, and the U.K. that are on pause until an end-of-November deadline. The OECD has warned that a cascade of trade retaliations could bite into a full 1% of world gross domestic product.
6. What’s wrong with the current system?
U.S. Treasury Secretary
7. What happens next?
8. What’s the situation in the U.S.?
Yellen, who played a major role in brokering the global deal, must sell Congress on legislative changes to the U.S.’s own global minimum tax in line with the new rules. Lawmakers may also have to sign off on the global reallocation plan -- possibly through changes to tax treaties, which go through the Senate, though there’s been hints that Treasury may look for an alternate route. Many Republicans
The Reference Shelf
- A QuickTake on the
rise of digital taxesaround the globe.
- The Urban-Brookings Tax Policy Center breaks down how the international tax rules currently work.
- Corporate America
found waysto dodge taxes in the current tax system.
- The Tax Foundation ranks countries on the competitiveness of their tax systems.
--With assistance from
To contact the reporter on this story:
To contact the editors responsible for this story:
Laurence Arnold, Vandana Mathur
© 2021 Bloomberg L.P. All rights reserved. Used with permission.