If widely adopted, GMT would effectively end the practice of global companies seeking low-tax jurisdictions like Ireland and the British Virgin Islands to relocate their headquarters there, even if their customers, their operations and their leaders are located elsewhere.
“For decades the United States has participated in self-defeating international tax competition, lowering our corporate tax rates only to see other countries lower theirs in response. The result was a global race to the bottom: who could lower their corporate tax rate any further? and faster? No nation has won this race, ”Yellen said in a statement on the deal.
“Today’s agreement of 130 countries representing over 90 percent of global GDP is a clear sign: the race to the bottom is one more step towards an end,” Yellen said.
The deal would also include a framework to eliminate taxes on digital services, which targeted America’s biggest tech companies.
In their place, finance ministers agreed to a new tax plan that would be tied to where multinationals actually do business, rather than where they are headquartered.
Much of the groundwork for adopting a GMT has already been thrown out by the Organization for Economic Co-operation and Development, or OECD, which last fall released a plan outlining a two-pillar approach to taxation. international.
The OECD Inclusive Framework on Base Erosion and Profit Shifting, known as BEPS, is the product of negotiations with 137 member countries and jurisdictions.
Yellen’s announcement did not include the actual rate at which GMT would be set, but the Biden administration pushed for at least 15%.
G-20 finance ministers and central bank governors are due to meet in Venice, Italy later this month, and the international tax plan is expected to be high on the agenda.
The GMT agreement represents a key part of what President Joe Biden has called “a foreign policy for the middle class”.
The strategy, devised in part by Biden’s national security adviser Jake Sullivan, highlights how foreign and domestic policy can be brought into a new middle ground between traditional conservative and liberal approaches to world affairs.
“Foreign Policy for the Middle Class” is about ensuring that globalization, trade, human rights and military might are all exploited for the benefit of American workers, not just billionaires and multinational corporations, but not neither for abstract ideological reasons.
This is a developing story, please check for updates.