Finance ministers from the world’s most developed economies said on Wednesday they hoped to agree on an overhaul of the way multinationals are taxed as well as on a minimum tax rate by the end of the year.
- Long-running multilateral talks on the question were given a boost this week when U.S. Treasury Secretary Janet Yellen signaled support for the idea of a global minimum tax rate that would help end the “30-year race to the bottom” on corporate taxation.
- The blueprint for an international agreement on the matter was published by the Organization for Economic Cooperation and Development last October, but the Trump administration had by then decided to withdraw from the long-running multilateral negotiations.
- According to the Financial Times, the U.S. also put forward this week its own proposal on how to tax the world’s largest multinationals, along lines similar to the OECD’s suggestions.
- The current proposals would see big multinational corporations, regardless of the nature of their business, taxed in part on a national basis, in proportion to the revenue they derive from their respective markets.
- The U.S. government, which is planning to raise the tax rate from 21% to 28% over the years, is aiming for a global minimum rate of 21%, although the OECD has suggested it could be closer to 15%.
The outlook: Corporate taxes are another major area where the U.S. rejoining a multilateral forum helps kick-start stalled negotiations. Obstacles remain on the way to a deal, but the prospect of renewed trade and tax wars in the post-pandemic global economy — at a cost the OECD estimates at 1% of global gross domestic product — could help focus minds.
Since unanimity will be required for any deal, expect low-tax countries such as Ireland (where the 12.5% corporate tax rate is considered a symbol of national sovereignty by all political parties) to fight their corner vigorously.