130 countries have agreed to back President Biden’s proposal for a global minimum tax on corporations. According to Treasury Secretary Janet Yellen this agreement marks a “historic day for economic diplomacy,” while the Organization for Economic Co-operation and Development said that the plan could generate about $150 billion a year in new tax revenues for participating countries.
The agreement would require that multinational corporations with revenues of at least $24 billion to pay a minimum tax of 15% on earnings in each nation in which they operate.
Hungary, Estonia and Ireland have not joined the agreement out of fear that it would impact their economies which profit from many of such corporations who have set up their headquarters in these countries due to low taxation. Ireland’s tax rate is 12.5%, which is also the reason for attracting substantial investments specially in technology sector.
“For decades, the United States has participated in a self-defeating international tax competition, lowering our corporate tax rates only to watch other nations lower theirs in response,” Yellen said in a statement. That “race to the bottom” is now “one step closer to coming to an end,” she continued.
“Today’s agreement by 130 countries representing more than 90 percent of global GDP is a clear sign: the race to the bottom is one step closer to coming to an end,” Yellen said.
But Hungarian Finance Minister Mihaly Varga poured cold water to the proposal. “The global minimum tax would obstruct economic growth, the planned 15% tax rate is too high and it shouldn’t be levied on real economic activity,” Varga said in a statement Friday.
Therefore, while the Biden administration is claiming victory, the implementation of this additional tax won’t be coming soon enough to impact global corporations.