Treasury Secretary Janet Yellen has announced that officials from 130 countries have agreed to a global minimum tax on corporations. Collectively, the nations represent about 90% of global GDP.
In a statement, Yellen said the agreement -- reached Thursday during a virtual meeting -- marks a “historic day for economic diplomacy” as it signals that the global “race to the bottom” is coming to an end.
“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.
“Lower tax rates have not only failed to attract new businesses, they have also deprived countries of funding for important investments like infrastructure, education, and efforts to combat the pandemic.”
New tax plan
The governments of countries included in the plan will now seek to pass laws ensuring that companies headquartered in their countries pay a minimum tax rate of at least 15% in each of the nations in which they operate. The plan is expected to significantly reduce opportunities for tax avoidance.
In the U.S., the agreement will “ensure that corporations shoulder a fair share” of the tax burden, Yellen said. She added that the plan will allow America to “enter a competition that we can win; one judged on the skill of our workers and the strength of our infrastructure.”
"We have a chance now to build a global and domestic tax system that lets American workers and businesses compete and win in the world economy,” she said.
The Organization for Economic Cooperation and Development (OECD) describes the agreement as a “two-pillar solution to address the tax challenges arising from the digitalisation of the economy.” The OECD said details of the plan, such as when and how it will be implemented, will be finalized in October.
"After years of intense work and negotiations, this historic package will ensure that large multinational companies pay their fair share of tax everywhere," OECD Secretary-General Mathias Cormann said in a news release.