Major change in rules worldwide for corporate taxation advances

An overhaul of global corporate tax rules took a major step forward Friday, as 136 nations backed a 15 percent minimum profits levy and a new approach to tackling the most successful companies of the internet economy.

The agreement, announced by the Organization for Economic Co-Operation and Development in Paris, included countries accounting for more than 90 percent of world output.

Importantly, it was joined by several low-tax jurisdictions, such as Ireland, Hungary and Estonia, that had resisted the deal. All members of the Group of 20 leading developing nations and the OECD have signed on.

“Virtually the entire global economy has decided to end the race to the bottom on corporate taxation,” said Treasury Secretary Janet Yellen, who negotiated the pact. “Rather than competing on our ability to offer low corporate rates, America will now compete on the skills of our workers and our capacity to innovate, which is a race we can win.”

The announcement, potentially the most significant shift in global taxation in a century, updates a July agreement that had been backed by 130 nations. The tax changes still must be turned into legislation and passed by each of the participating countries, including the U.S.

The 15 percent corporate tax is expected to collect a global total of $150 billion in new tax revenues. The Biden administration says it will reduce incentives for U.S. corporations to locate plants and personnel in low-tax jurisdictions abroad.

The accord also shifts the right to tax multinationals from their home countries to nations where they earn significant profits, even without a physical presence there. The measure applies to corporations with profit margins above 10 percent and global sales exceeding 20 billion euros (or roughly $23 billion at current exchange rates).

An OECD statement described the affected companies, notably including U.S. digital giants such as Google, Amazon and Facebook, as “the winners of globalization.” European nations that had begun imposing dedicated digital taxes to raise revenue from these internet age stars now are expected to rescind them.