U.S. proposal for global minimum tax gets support from 130 nations

Treasury Secretary Janet Yellen said on Thursday that 130 nations have agreed to the U.S.’s proposal of a global minimum tax for corporations to overhaul international tax rules.

If GMT is widely enacted, it will end the practice of global firms seeking out low-tax jurisdictions to move their headquarters to, even though their executives, operations, and customers are located elsewhere.

“For decades, the United States has participated in a self-defeating international tax competition, lowering our corporate tax rates only to watch other nations lower theirs in response. The result was a global race to the bottom: Who could lower their corporate rate further and faster? No nation has won this race,” said Yellen in a statement on the accord.  

“Today’s agreement by 130 countries representing more than 90 percent of global GDP is a clear sign: the race to the bottom is one step closer to coming to an end,” Yellen said.

The deal also includes a framework to eliminate digital services taxes, which several nations have levied on the biggest American tech companies.

The new tax plan will be structured in a way so that the firms will be liable to pay the taxes linked to the places where they are actually doing business, rather than where the headquarter is situated.

The Organization for Economic Cooperation and Development has laid out much of the groundwork for adopting a GMT and released an outline of the blueprint, which includes a two-pillar approach to international taxation, known as Base Erosion and Profit Shifting (BEPS).

The outline is based on negotiating with 137 member countries and jurisdictions.

Though Yellen did not announce the rate for the GMT, the Biden administration has been pushing for at least 15% taxation.

Later this month, finance ministers and central bank governors of G20 nations will meet in Venice, Italy, and the international tax plan is expected to be high on the agenda.

Picture Credit: CNBC