Overview of the Global Minimum Tax Agreement
The Organisation for Economic Co-operation and Development (OECD) has announced that the United States, along with more than 100 countries, has reached an agreement on a global minimum tax. This development follows Washington’s push for exemptions from the global minimum tax.
Background and Key Players
In 2021, countries agreed to tax multinational corporations under an OECD-negotiated deal. The agreement consists of two “pillars,” with the second pillar establishing a global minimum tax rate of 15%.
Despite this, former US President Donald Trump opposed the global tax deal, stating that the proposed agreement would have no force or effect for the United States.
US Department of Treasury’s Statement
On the previous day, the US Department of Treasury declared that they had worked to “reach an agreement with the over 145 countries of the OECD/G20 Inclusive Framework to ensure that US-based companies remain subject only to the US minimum taxes, exempting them from Pillar Two.”
“This parallel agreement acknowledges the tax sovereignty of the United States over the global operations of US-based companies and the tax sovereignty of other countries over business activities within their own borders,” added the Treasury.
Context and Impact
This update came after the Group of Seven (G7) countries agreed in June to exempt US-based multinational corporations from the global minimum tax imposed by other countries.
At that time, the US Treasury Secretary requested Congress to remove a provision from Trump’s “One, Big, Beautiful Bill” draft, nicknamed the “revenge tax,” following progress in the G7 agreement.
The Global Minimum Tax Agreement Details
The agreement comprises two “pillars.” The second pillar sets a global minimum tax rate of 15%.
Key Questions and Answers
- What is the global minimum tax agreement? It’s an accord between over 100 countries, including the United States, to establish a global minimum corporate tax rate of 15%.
- Who opposed the agreement? Former US President Donald Trump opposed the global tax deal, stating it would have no effect on the United States.
- What does the US exemption mean? The US-based companies will continue to be subject only to US minimum taxes, exempting them from the second pillar of the agreement.
- Why was this agreement necessary? The deal aims to prevent tax avoidance by multinational corporations and ensure they pay a fair share of taxes wherever they operate.
