Some 130 countries have thrown their support behind a global minimum tax rate proposed by the United States.
The global minimum tax rate is as part of a worldwide effort to keep multinational firms from dodging taxes by shifting their profits to countries with lower taxes.
The agreement attempts to address challenges presented by a globalized and increasingly digital world economy in which profits can be relocated across borders and companies can earn online profits in places where they have no taxable headquarters.
The deal calls for a global minimum tax of at least 15%, a key element pushed by the administration of U.S. President Joe Biden, which wants to raise more revenue for infrastructure and clean energy technology.
It will be at least 2023 before the global minimum tax rate takes effect. The agreement was first announced by the Paris-based Organization for Economic Cooperation and Development (OECD).
Countries led by France have already started imposing unilateral digital taxes aimed at U.S. technology giants such as Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOGL)and Facebook (NASDAQ:FB). Under the new deal, they would agree to withdraw those taxes, regarded as unfair trade practices by the U.S., in favor of the global minimum tax rate.
Under the deal, countries could tax their companies' foreign earnings up to 15% if they go untaxed through subsidiaries in other countries. That would remove the incentive to use accounting and legal schemes to shift profits to low-rate countries where they do little or no business, since the profits would be taxed at home anyway.
In the U.S., President Biden has proposed a 21% minimum tax rate on overseas earnings of big U.S. companies to deter them from shifting profits to tax havens. Biden's U.S. tax must first pass Congress, where the Democratic president has only a narrow majority.
