Plans for a Global Minimum Tax Revolution, Explained

Multinational companies have long used creative but legal ways to shrink their tax bills. One is to book profits from customers in places like Boston and Berlin as if they came from, say, Bermuda, which has no corporate income tax. The world’s richest economies have agreed to a revamp of the global tax system that would undercut the effectiveness of such a strategy while also reallocating the taxes paid by huge technology companies.

The Group of 20 nations -- which represent about 90% of the global economy -- reached an agreement in July to support the outlines of a new global tax system that will change how much corporations pay, and to whom. A worldwide minimum corporate tax rate of at least 15% would reduce the attractiveness of tax havens. Companies such as Amazon, Facebook and Google, which can sell their digital products in countries without establishing an easily taxed physical presence, may see some of their taxes paid based on where those sales occur. Countries where big firms operate would get the right to tax between 20% to 30% of profits exceeding a 10% margin, according to the G-20 deal. So far, 132 countries have signed on. Holdouts include Ireland and Hungary, which have benefited from having some of the lowest corporate tax rates in Europe.