Biden, other G-20 world leaders to formally endorse new global corporate minimum tax

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imageROME — President Biden and the other national leaders gathered for the Group of 20 summit formally endorsed a new global minimum tax on Saturday, capping months of negotiations over the groundbreaking tax accord.

The new global minimum tax of 15 percent aims to reverse the decades-long decline in tax rates on corporations across the world , a trend experts say has deprived governments of revenue to fund social spending programs.The deal is a key achievement for Treasury Secretary Janet Yellen, who made an international floor on corporate taxes among the top priorities of her tenure and pushed forcefully for swift action on a deal.The plan was already endorsed by the finance ministers of each country, but its official approval by the heads of state puts added pressure on the difficult task of turning what remains an aspirational agreement into legislation.Global minimum tax effort moves forward as Ireland and Hungary join pact Nearly 140 countries representing more than 90 percent of total global economic output have endorsed the deal, but they each must implement the new standards in a process that could take time and overcome internal political opposition.“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,” Yellen said in a statement Saturday.“It’s a critical moment for the U.S.

and global economy.The tax deal came together as leaders in Rome — some virtually due to the ongoing pandemic — are tackling a daunting international agenda over the course of the October summit, from climate change to pandemic preparedness to new measures to improve vaccine access.

The U.N.Climate Change Summit, known as COP26, will get under way in Glasgow, Scotland, on Sunday, as global policymakers meet to discuss plans to limit greenhouse gas emissions and avoid the worst impacts of global warming.Hoping to break with former president Donald Trump, Biden has emphasized a spirit of collaboration with America’s European partners — aiming to solidify global agreements on a range of pressing international challenges.In line with that, the Biden administration on Saturday also struck a deal with European Union officials to lift some tariffs on steel and aluminum imports, resolving a bitter trade stand-off that began underTrump three years ago.The deal allows “limited volumes” of steel and aluminum products from the E.U.

to enter the United States tariff-free.In return, the E.U.will drop their retaliatory tariffs on American goods.

The E.U.had been poised on Dec.

1 to boost tariffs to 50 percent on various U.S.products, including Harley-Davidson motorcycles and bourbon from Kentucky.The minimum tax will be coupled with a broader change to global taxation intended to prevent countries and companies from undercutting the new floor.Under the pact, corporations trying to evade taxation by shifting profits to low-tax countries will face a “top-up” tax, which would require them to pay the difference between the tax haven’s tax rate and the 15 percent minimum tax rate of the companies where they are headquartered.Supporters of the deal are also optimistic companies will not move to relocate their headquarters abroad, in part because so much of the world has committed to the new minimum.

Treasury officials have said new “enforcement provisions” will impose tax penalties based in countries refusing to join the deal.The deal includes not just these changes but a separate overhaul of how multinationals are taxed when earning profits in countries where they have no physical presence.

That related but distinct tax deal is intended primarily to address anger in Europe over the U.S.-based tech giants that pay little in taxes in European countries despite earning substantial profits there.Several European leaders have said they see the measures as tied together.Despite the accord, major hurdles remain toward the push for implementing an overhaul of the international tax system.The agreements set out a 10-year transition period, giving time for changes to take effect.Congressional Republicans say the part of the deal related to the tech companies will require a change to U.S.treaty law — a move that requires two-thirds of U.S.Senators, and therefore GOP support, to win approval.

Treasury has rejected this interpretation of the law, arguing the changes can be done without a new treaty, and said Republicans may support changes to clarify international law if favored by the business sector.But the fate of key parts of the accord could wind up before the Supreme Court should the administration pursue unilateral action.The United States already has a version of its own global minimum tax, created as part of the 2017 GOP tax act, that imposes a 10.5 percent minimum tax on U.S.multinational firms’ foreign earnings.The Biden administration initially proposed raising the tax on foreign profits to 21 percent as a demonstration of America’s commitment to higher corporate taxes, but after negotiations with congressional Democrats, have instead proposed a 15 percent rate in line with the global agreement.The spending-and-tax plan being discussed in Congress also includes a separate 15 percent tax minimum tax on the domestic profits of large U.S.companies.

The U.S.corporate tax rate today stands as 21 percent, but many companies pay well below that thanks to deductions.Republicans have slammed the global tax plan as fanciful thinking by an administration sacrificing part of the U.S.tax base to European rivals largely to secure a symbolic victory.Skeptics also note that key details in the plan, particularly pertaining to the part of the tax agreement related to taxing multinational tech firms, remain unresolved and that leaders could confront disagreements when bringing the plan to fruition.“The Europeans have no particular interest in the global minimum tax, and will in subtle ways gut it so it’s effectively far less than 15 percent,” said Douglas Holtz-Eakin, a Republican policy analyst.“The deal was: ‘We’ll give you some more tax base, and in exchange you’ll raise taxes on yourself.’ But I wonder if we’ll get that deal in practice.” Across the globe, taxes on corporations plummet Other critics contend that the plan could in fact punish some of the poorest countries, by shifting the base of taxation from where production occurs to corporate headquarters more often located in rich nations.Nigeria and other African countries, along with Pakistan and a handful of others, have balked at the agreement.“The production occurs in the developing world,” said Joseph Stiglitz, an economist at Columbia University.“The fact they decided to give the tax to the advanced countries just shows the lack of empathy for the developing countries.”A Treasury official said in a statement that the tax accord would help developing countries, in part because it would help poorer nations — which are far more dependent on corporate tax revenue to fund their government operations than the developed world — prevent firms from relocating to ta havens.Yellen has been adamant that something has to be done to prevent corporations from playing countries off each other to push corporate tax rates lower and lower.The average corporate tax rate globally has fallen from about 40 percent in 1980 to roughly 23 percent in 2020, according to the Tax Foundation.In 2017, roughly 40 percent of profits earned by the world’s multinational firms — or more than $700 billion — was stashed in tax havens.The new minimum tax rate only applies to firms with more than $850 million in annual revenue and is expected to raise roughly $150 billion in additional global tax revenue every year, according to the Organization for Economic Cooperation and Development, which brokered the agreement..

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