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Over 130 countries clinch a deal that could radically reshape how companies are taxed

Oct 8, 2021
Originally published on October 8, 2021 4:08 pm

Updated October 8, 2021 at 2:31 PM ET

More than 130 countries on Friday backed a landmark agreement to set a new minimum tax rate for companies around the world.

The agreement, which was brokered by the Organisation for Economic Co-operation and Development (OECD), would set a minimum tax rate of 15% from 2023, and it has the potential to transform the global business landscape by cracking down on tax havens.

But the agreement still faces a rocky path given that it must be passed by a closely divided U.S. Congress and be approved by each of the countries.

Nonetheless, the deal delivers a big win for Treasury Secretary Janet Yellen, who has spearheaded the proposal, arguing it would end the practice of companies shopping around the world for countries with the lowest tax jurisdictions.

"Today's agreement represents a once-in-a-generation accomplishment for economic diplomacy," Yellen said in a statement.

For months, the Biden administration has pushed for the change, which the OECD projects could raise $150 billion in revenues each year.

U.S. companies have come under scrutiny for paying little taxes, or sometimes no taxes, by basing themselves in countries with low-tax regimes, like Ireland.

The agreement also calls for technology companies like Amazon and Facebook to be taxed in countries where they sell their goods or services, regardless of whether they are physically present there.

The global tax deal still faces a rocky path

Forcing companies around the world to pay at least a 15% corporate tax could bring in much needed revenues at a time when the Biden administration is looking to spend trillions of dollars on a slew of initiatives, including boosting safety nets and investing in infrastructure.

It would allow the Biden administration to push for higher corporate taxes by reducing incentives for companies to base themselves outside the United States.

However, Congress would need to approve the deal — an uncertain prospect at a time when lawmakers are deeply split over Biden's domestic agenda.

The Senate this week clinched a deal to raise the debt ceiling, but only until early December. Republicans led by Sen. Mitch McConnell, R-Ky., had blocked previous attempts by Democrats to raise or suspend the debt ceiling, raising fears that the U.S. would run out of cash to pay its bills.

The tax agreement will now go for approval to the meeting of Group of 20 leaders in Rome at the end of the month.

Copyright 2021 NPR. To see more, visit https://www.npr.org.

AILSA CHANG, HOST:

More than 130 countries have agreed to a landmark deal that would change the way companies are taxed around the world. Every company would see a minimum tax rate of 15%. And Treasury Secretary Janet Yellen says that is historic. NPR's David Gura joins us now to explain more.

Hey, David.

DAVID GURA, BYLINE: Hey, Ailsa.

CHANG: All right, so why is this deal so significant?

GURA: Well, it's a huge deal to have this many countries agree to something like this.

CHANG: (Laughter).

GURA: We're talking about 136 jurisdictions that represent 90% of the global GDP.

CHANG: Wow.

GURA: That's according to the OECD, the organization that helped hammer out this deal. And a global minimum tax rate has been something the U.S. has been pushing for for decades, as companies have moved operations overseas. The big hurdle over the last few days was getting three countries on board. Ireland is one of them. The other two are Estonia and Hungary. Each of them has a very low corporate tax rate.

CHANG: OK. And exactly what role did Janet Yellen, the Treasury secretary, play in all of this?

GURA: Yeah, she really spearheaded this. Secretary Yellen made this one of her goals back in April. She's been pushing for it for several months. And this is a huge win for her. She's defied critics who didn't think a deal like this would come together and certainly didn't think it could come together this quickly. But Yellen worked the phones. She spoke about this with her counterparts often. And she's made the case over and over again that this is something critical. Here's what she had to say about today's agreement.

(SOUNDBITE OF ARCHIVED RECORDING)

JANET YELLEN: It's a global deal that will stabilize an eroding international tax system.

GURA: The deal is also important to the Biden administration's policy agenda. I mean, here in the U.S., it's proposed spending trillions of dollars on infrastructure and other projects, and one way they've proposed paying for all of that is through an increase to the corporate tax rate in the U.S. So the thinking goes, Ailsa, if there is this global minimum tax of 15%, that would narrow the competitive gap between the U.S. and other countries.

CHANG: Narrow the competitive gap. OK, so what was actually agreed to?

GURA: Right. So 15% percent would be the floor. That would be the lowest corporate rate a country could charge. For years, large multinational companies have essentially gone tax shopping. They've set up shop wherever they can find the lowest rate.

CHANG: Right.

GURA: Ruth Mason is professor of law and taxation at the University of Virginia, and she and I talked about what President Biden has called a race to the bottom when it comes to corporate taxes.

RUTH MASON: You know, tax competition is as old as taxation, so this is a very long-standing problem and one that has gotten more significant over time.

GURA: You know, Ireland, for instance, for years has managed to attract tech giants, including Apple and Microsoft, companies that expanded their global footprint there because Ireland has charged such low rates. Companies make these big profits, but they don't bring it back to their home countries. The other part of this deal is a change to how companies are taxed. They do business in countries outside where they have headquarters, where they don't have a physical presence. Again, we're talking about tech companies mostly. Under this agreement, pretty much anywhere you'd use Facebook or buy something from Amazon, they'd be liable for taxes anywhere they do business, whether or not they have an office there. And this change in taxation is estimated to raise new revenue, Ailsa, of about $150 billion a year.

CHANG: Wow. Impressive. OK, so what happens next?

GURA: The Treasury secretary says she wants to see this deal finalized by the end of the month. The goal, according to her and the OECD, is to implement these tax reforms by 2023. That's an ambitious timetable because there is a lot of uncertainty. Congress, of course, is a sizable roadblock here. I mean, each jurisdiction has to approve this agreement. There is no guarantee this will get through the U.S. Congress. After all, as we've seen this week, lawmakers barely managed to raise the debt ceiling to avoid a default on U.S. debt, Ailsa.

CHANG: That is right. That is NPR's David Gura.

Thank you, David.

GURA: Thanks, Ailsa. Transcript provided by NPR, Copyright NPR.