Over one hundred thirty countries around the world are debating proposals that would result in some of the most consequential changes to the international tax code in a generation, including implementing a global minimum tax of 15 percent on corporate earnings. The goal of the long-running base erosion and profit shifting (BEPS) project at the Organisation for Economic Co-operation and Development (OECD) is to reduce base erosion and profit shifting by convincing so-called “tax havens” to raise corporate tax rates. The current debates and headlines on international tax are often complicated, with many nations taking different views. To simplify the debate, Penta built the International Tax Tracker to highlight the latest information on tax regimes and global minimum tax policy stances for the 53 largest global economies—which comprise 95% of the world’s gross domestic product.
On October 8th, 136 countries agreed to the “Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy” which outlines a framework for a global minimum tax. The agreement subjects all multinational enterprises with total revenues exceeding €750 million to a 15% minimum tax on a country-by-country basis. The OECD does not have any policymaking authority, and national governments in member and participating countries will ultimately be responsible for implementing tax policy that conforms with the new tax rules. The October agreement lays out a proposed timeline—tax changes should be legislated in 2022 and then implemented in 2023 at the earliest.
The United States has been at the forefront of the BEPS project at the OECD since the Obama administration and led the charge for the global minimum tax efforts in the last year. The international tax provisions of the Tax Cuts and Jobs Act enacted a number of anti-profit shifting policies with the Beltway-infamous acronyms of GILTI (Global Intangible Low-Tax Income) and BEAT (Base Erosion and Anti-Abuse Tax).
The Biden administration, the House Ways and Means Committee, and the Senate Finance Committee have each released proposals to change minimum tax rules, each of which exceeds the OECD’s proposed framework. The House Ways and Means plan would raise foreign rates to 16.56%, while the Biden administration’s plan would hike rates to 21%, and the Senate Finance proposal rate is a bit unclear. All proposals would be legislated in 2021 and enacted in 2022, increasing rates on a faster timeline than the OECD and raising concerns from both Democrats and Republicans about the global competitiveness of American companies in reaching new customers and markets around the world. This concern is supported by a recent study from the National Association of Manufacturers that found that hiking the GILTI rate could result in 500,000 to 1 million lost U.S. jobs. As a result, many businesses are calling upon lawmakers to align America’s GILTI rate and potential implementation timeline with the OECD’s proposal, and some policymakers have signaled their support for synchronizing the effective date with those of other major economies.
Penta's International Tax Tracker will follow the global minimum tax and OECD process and be updated weekly to reflect any changes in countries’ positions and policies. Policymakers in 136 countries will be working together towards a common goal, with jobs, economic growth, tax and fiscal policies, and the competitiveness of global businesses at stake.