Global deal to put an end to tax havens moves forward

The world’s most powerful nations Friday agreed to a sweeping overhaul of international tax rules, with officials backing a 15% global minimum tax and other changes aimed at cracking down on tax havens that have drained countries of much-needed revenue.

The Organization for Economic Cooperation and Development, which has been leading the negotiations, said the new minimum tax rate would apply to companies with annual revenue of more than 750 million euros ($866 million) and would generate around $150 billion in additional global tax revenue per year.

“Today’s agreement will make our international tax arrangements fairer and work better,” OECD Secretary-General Mathias Cormann said in a statement. “We must now work swiftly and diligently to ensure the effective implementation of this major reform.”

The agreement is the culmination of years of fraught negotiations that were revived this year after President Joe Biden took office and renewed the United States’ commitment to multilateralism. Finance ministers have been racing to finalize the agreement, which they hope will reverse a decadeslong race to the bottom of corporate tax rates that have encouraged companies to shift profits to low-tax jurisdictions, depriving nations of money they need to build new infrastructure and combat global health crises.

On Friday, Hungary joined two other important holdouts, Ireland and Estonia, in agreeing to the plan. Kenya, Nigeria, Pakistan and Sri Lanka did not sign on to the agreement.

The United States, which proposed the 15% minimum corporate tax rate, has long looked for ways to minimize incentives for companies to shift profits abroad to lower their tax bills. As the Biden administration prepares to try to raise corporate rates in the United States, getting a global minimum tax in place has become critical to prevent companies from simply moving their headquarters overseas.

The deal goes beyond setting a global rate it also creates new rules for the digital era. Under the agreement, technology giants such as Amazon, Facebook and other big global businesses will be required to pay taxes in countries where their goods or services are sold, even if they have no physical presence there.

The separate tax aimed at the technology giants will reallocate more than $125 billion of profits from the home countries of the 100 most profitable firms in the world to the markets where they operate.