Giant multinational corporations will soon face a globally coordinated corporate minimum income tax of 15%.
The idea of a globally coordinated tax is a solution to the scandal of tax havens, in which companies locate their official “headquarters”—or register their intellectual property—in low-tax countries.
International negotiations to solve that tax avoidance problem began in 2013 during the Obama administration, continued during the Trump years, and were clinched by Biden’s Treasury Secretary Janet Yellen in October 2021. Adopted by 137 countries, the tax deal is the most significant overhaul of international tax rules in a century.
The taxes are now moving forward in the European Union, the U.K., Canada, South Korea, South Africa, Switzerland and other countries. EU and the UK will start collecting the taxes in 2024.
Ironically, the country that proposed the global tax—the United States—is the one where it’s not moving forward. After Yellen’s breakthrough, Biden pushed get the U.S. Congress to pass the tax, but it stalled last year in the 50-50 divided Senate because it was opposed by all Republicans plus Democrat Joe Manchin of West Virginia. Now, Republicans control the House, and GOP leaders like House Ways and Means Committee chair Jason Smith say the agreement will not move forward in Congress.
Congressional Republicans aren’t the only ones to oppose a globally coordinated corporate minimum tax. Nigeria, Kenya, Pakistan, and Sri Lanka also are opposed.
But thanks to the ingenious way the international agreement was structured, if any country doesn’t levy the tax, other countries will get to increase their minimum tax by an offsetting amount, and keep the revenues. That way, there’s no incentive for companies to continue to game the system, like Apple Computer pretending its intellectual property originates in Ireland, for example. They’ll pay the tax one way or another, and countries that don’t cooperate will just lose out on the revenue. The tax will be levied on companies with revenues of over $750 million, and once in effect is expected to generate about $150 billion of revenue per year globally.