Why A Global Corporate Tax Rate Would Be A Huge Deal

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For decades, corporate tax rates have been an important economic issue across national borders.

Some localities have long been part of a “race to the bottom” to attract international businesses by introducing ever lower corporate tax rates.

This, of course, angered other countries, including the United States, which saw such efforts as a means of moving jobs abroad and avoiding taxes where most of a company’s business actually took place.

At the end of last week, however, leaders from 136 nations came to a landmark agreement This could drastically change the relocation incentives for large international companies.

For the first time, countries that represent more than 90 percent of the world’s gross domestic product have committed to a global minimum tax rate of 15 percent.

It is difficult to reach broad agreement in international politics, but this one proved to be a particular challenge.

Some objectors, who had used their own lower corporate tax rates to attract international businesses, were (understandably) reluctant to close the deal.

Ireland z became known as the “Google Quarter”). However, Ireland stepped in after assurances that the 15 percent rate would not be increased later and that small businesses would not be subject to the new minimum corporate tax rate.

Hungary was also skeptical about a worldwide minimum corporate tax rate for a long time – but Hungary also accepted the agreement in the end, attracted by the long implementation period (the implementation of the agreement is to begin in 2023, the word “begin” “in this sentence means a lot of heavy lifting).

The global minimum corporate tax rate may be the real turning point, but the deal has other components, some of which would have been big news in the corporate world alone.

For example, certain provisions require multinationals to pay taxes wherever they generate sales and profits, as opposed to only where these companies are physically present. This could have a significant impact on a number of large tech companies, including Amazon and Google, which have concentrated their profits in today’s low-tax countries.

While it is a great achievement to have reached an agreement on this scale among dozens of countries that represent the vast majority of world wealth, there is one major catch.

Much like the Paris Agreement on Climate Standards, the Agreement on the Minimum Corporate Tax Rate requires countries to pass national laws internally in order to implement them.

In the United States, ratification of the treaty must be achieved with the approval of at least two-thirds of the US Senate. That won’t happen if the Senate is 50-50 split, and I’ll bet you have a pretty good guess as to which Senators of which party will torpedo anything that could potentially be considered an achievement in the current political climate.

But Treasury Secretary Janet Yellen recently said she was “confident” that the minimum global corporate tax rate will be exceeded through the supposedly upcoming budget reconciliation bill, which will only require a majority vote in the Senate (with Vice President Kamala Harris breaking any tie).

There could be legal challenges to implementing the global minimum corporate tax rate agreement this way – Republican senators sent Yellen a letter expressing their opinion that the deal is an international tax deal that two-thirds of the Senate ratify must become.

Yellen didn’t seem convinced, however, and it remains to be seen whether Republicans would risk retrospectively questioning the deal’s implementation if it goes through a reconciliation.

Jobs and corporate profits have flowed out of the US rather than the US in the past few decades, so a voluntary agreement between countries to stop attempts to go below US tax rates is likely to be quite popular if the average American voter actually finds out about it the end.

A minimum corporation tax rate that is equally applicable across national borders simply makes sense. It gives nations no incentive to accept ever smaller crumbs from the tables of massively profitable global conglomerates, and it would go a long way in keeping companies where they actually do business.

Hopefully it will be easier to enforce and implement this international minimum corporate tax treaty than the Paris Agreement.

Jonathan Wolf is a civil litigation attorney and author of Your debt free JD (Affiliate link). He has taught legal writing, written for a variety of publications, and made it his business as well as his pleasure to be financially and scientifically literate. Any views he expresses are likely pure gold, yet entirely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the loan anyway. He can be reached at jon_wolf@hotmail.com.