On Thursday, a virtual conference meeting of 130 countries on a sweeping change in international taxation: the largest endeavor in a century. The U.S. won international backing for a global minimum tax rate as a global effort raising and spending. in overhauling of the rules for taxing multinational companies [MNCs] in securing an agreement on a key component of the Biden administration domestic plans for revenue. The agreement included all G-20 major economies with China and India which previously had reservations about the proposed overhaul.
This agreement will allow governments to seek to pass laws ensuring companies with headquartered in their countries to pay a minimum tax rate of at least !5% in each of the nations in which they operate; reducing opportunities for global tax avoidance.
While conducting oversight of global revenue efforts, the Organization for Economic Cooperation [OEC], estimates that governments lose revenue between $100 billion and $240 billion to global tax avoidance each fiscal year.
Mathias Cormann, OECD Secretary-General contends: After years of intense work and negotiations, this historic package will ensure that large multinational companies pay their share of tax everywhere,”
In a statement, U.S. Treasury Secretary Janet Yellen calls it “a historic day for economic diplomacy,” she said. “Today’s agreement by 130 countries representing more than 90% of the global GDP is a clear sign: The race to the bottom is one step closer to coming to an end.”
The Biden administration’s international efforts are aligned closely with its domestics tax agenda which calls for raising the U.S. corporate tax rate to 28% from 21%, and raising the minimum tax on U.S. domestic companies’ foreign profits to 21% to 10%.
This will level the playing field and make America more competitive, President Biden said in a statement, “And it will allow us to devote the additional revenue we raise to making generational investments, which are necessary to keep America’s competitive edge razor sharp in today’s global economy.”
Some Republicans and Democrats are concerned about raising corporate tax rate. Objections from Democrats could cap the corporate tax rate at about 25%., and the Biden administration’s proposed international tax changes haven’t sustained attention from. lawmakers yet.
Despite discourse in agreement of corporate tax rate among U.S. lawmakers, 130 countries have agreed to a new way of sharing out the rights to tax profits that would give more revenue to countries in which businesses have customers. This change will impact the longstanding principle of international taxation, under which profits are taxed where value is generated which traditionally where businesses had a physical presence.
Some countries in Europe object to the minimum tax rate arguing that this would take away their marketing tool for attracting foreign investments. Ireland for example is designed as the European marketplace for most of the large U.S. tech companies including Hungary and Estonia. Other countries which are holdouts—Nigeria, Africa’s most Populus countries as well as Kenya, Peru and Sri Lanka
The Biden administration hopes to achieve in its efforts to pass corporate tax rate on MNCs to pay their fair share; not allowing companies to relocate to foreign low-tax haven markets to avoid paying corporate tax — particularly those digital giants who sell products and can register their intellectual property from which their profits derive from just about anywhere.