New top story from Time: 130 Countries Back Deal on Global Minimum Tax for Multinational Companies

(FRANKFURT, Germany) — Some 130 countries have backed a global minimum tax as part of a worldwide effort to keep multinational firms from dodging taxes by shifting their profits to countries with low rates.

The agreement announced by the Organization for Economic Cooperation and Development Thursday also provides for taxing the largest global companies in countries where they earn profits through online businesses but may have no physical presence.

The agreement followed a proposal from U.S. President Joe Biden for at least a 15% rate, an initiative that propelled the talks toward meeting a deadline for a deal by the middle of this year. The deal now will be discussed by the Group of 20 countries at meetings later this year in hopes of finishing the details in October and implementing the agreement in 2023.
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Under the deal, countries could tax their companies’ foreign earnings if they go untaxed through subsidiaries in other countries. That would remove the incentive to use accounting and legal schemes to shift profits to low-rate countries since the profits would be taxed at home anyway.

Not all of the 139 countries that joined the talks signed on to the deal. The proposal to tax countries where they have sales but no physical presence excluded extractive companies such as oil and mining and regulated banks.

The deal now faces more technical work to fill in details and review by the Group of 20 countries, which represent some 80% of the global economy. More discussion is expected at the meeting of the G-20 finance ministers in Venice next week, and then at the full G-20 summit of country leaders in October. The proposal to tax companies where they have revenue but no physical presence would require countries to sign up for a multilateral convention.

In the US, Biden has proposed a 21% minimum rate on overseas earnings of big US companies to deter them from shifting profits to tax havens. Biden’s US tax must first pass Congress, where the Democratic president has only a narrow majority.