Biden administration hails ‘historic’ agreement on minimum global tax rate at G20

Biden administration hails ‘historic’ agreement on minimum global tax rate at G20
The move is meant to stop corporations from pitting countries against each other to offer the lowest tax rates

Members of the Group of 20 summit — a meeting of 20 of the world’s most powerful heads of state, insluitend Joe Biden — have formally endorsed enacting a global minimum tax van 15 persent.

The tax is designed to counter decades of declining tax rates on corporations across the world, which experts claim has hobbled the ability of governments to fund social spending programs.

The endorsement is being hailed as a major achievement by US Treasury Secretary Janet Yellen, who made introducing a minimum tax rate a top priority during her tenure.

Finance ministers in each of the member countries previously endorsed the move, but the endorsement by the G20 heads of state suggests the nations will actually take steps to enact the minimum tax rate.

Actually enacting the plan will be more difficult than offering an endorsement at a summit. Each country will have to pass laws in order to fulfill its pledge to cooperate with the plan.

By enacting a minimum tax rate, G20 nations hope to curb therace to the bottomthat has taken place over the last several decades, in which corporations seek to set up shop wherever they can pay the least to operate.

Companies like Google, Facebook, Apple and many pharmaceutical companies have long used Ireland — with a corporate tax rate of 12.5 per cent — as a tax haven. A minimum tax across the 140 countries that have endorsed the deal — which accounts for 90 per cent of total global economic output — should eliminate the temptation for nations to try to court corporations by offering ever-decreasing tax rates.

Ms Yellen celebrated the endorsements.

“Today, every G-20 head of state endorsed a historic agreement on new international tax rules, including a global minimum tax that will end the damaging race to the bottom on corporate taxation,” Ms Yellen said in a statement Saturday. “It’s a critical moment for the U.S. and global economy.”

In addition to the minimum rate, the plan also calls for an agreement among countries that will impose atop-uptax on corporations trying to undercut the minimum tax rate. The tax would require them to pay the difference between the tax rate in the haven where they are operating and the 15 per cent minimum of the country where they are headquartered.

In the past, if a country moved to increase its tax rate a company could just threaten to leave the nation and headquarter in a tax haven. Under the new agreement, there would be few places on the planet where a company could effectively shelter, and if they did choose to do so, they would still have to pay the difference if they had headquarters in any of the countries that endorsed the deal.

In a blog post last month, Itai Grinberg, the deputy assistant to the treasury secretary, said there isgoing to be a lot of opportunity for enforcement to make it difficult, especially if there’s more international cooperation.

The plan is not without its detractors. Republicans have complained that the deal is nothing more than a symbolic move that will do little more than sacrifice US tax revenue to European nations where some multinational companies are headquartered.

Some skeptics have suggested that the European nations will work to gut the endorsement in order to continue offering low tax rates to major multinational corporations, though those claims are at present only skeptical predictions.

Others have complained that the move could actually hurt poorer countries by shifting taxation from the nation where production occurs to the nation where corporations build their headquarters. Pakistan, Nigeria and other African countries could take significant hits to their tax bases under the agreement.

Joseph Stiglitz, an economist at Columbia University, vertel Die Washington Post daardie “production occurs in the developing world.”

“The fact they decided to give the tax to the advanced countries just shows the lack of empathy for the developing countries," hy het gesê.

Even still, the average corporate tax rate across the globe has fallen from around 40 persent in 1980 to only 23 persent in 2020. It is estimated that approximately 40 per cent of profits earned by the world’s multinational firms, accounting for more than $700bn, is holed up in tax havens.

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