More than six years of work has produced an agreement to update the global tax system, targeting so-called tax havens and addressing complaints that giant technology companies don’t pay enough. For the first time there would be a minimum corporate tax rate applied around the world, set at 15%, so companies have less incentive to move operations to low-tax jurisdictions. The profits of about 100 of the biggest multinational corporations, including Amazon.com Inc., would be sliced differently for taxation purposes, so that more countries share in the tax revenue. And there would be an end to the so-called digital services taxes that have angered the U.S. The next challenges are ratification and enactment of the deal, but already, some nations are changing their tax policies to get ahead of the change.
The minimum tax is designed to stop what U.S. Treasury Secretary Janet Yellen called “a 30-year race to the bottom on corporate tax rates,” which created an incentive for multinational companies to attribute as much profit as possible to places that charge them little or no taxes. The jurisdictions “most complicit in helping multinational corporations underpay corporate income tax,” according to the U.K. advocacy group Tax Justice Network, are the British Virgin Islands, the Cayman Islands and Bermuda, which don’t tax corporate income. Use of tax havens costs governments $500 billion to $600 billion in lost tax revenue each year, according to estimates cited by the International Monetary Fund. Meanwhile, some governments have argued that tech companies aren’t properly taxed in countries where they have users but little or no physical presence. That’s what the profit reallocation aims to address.
