130 OECD Members Back Yellen’s Global Tax Overhaul As China, India Drop Resistance

Following weeks of intense talks involving diplomats from more than 130 countries and jurisdictions, Washington has succeeded in winning international backing for a new global minimum corporate tax framework that, if implemented, would constitute the biggest shakeup in international tax rules in a century.

The world took a critical step toward implementing the deal, which involves implementing an international minimum corporate tax rate in exchange for the US sharing the tax spoils from hundreds of the biggest American multinationals. The plan is a critical piece of Biden’s “Build Back Better” strategy, which involves passing trillions of dollars in “infrastructure” spending that will be partially offset by the biggest tax hikes in decades.

The deal, brokered with the help of the OECD, follows years of missteps and other setbacks for the organization, which has been trying to reform international tax rules for years, even before the US threw its support behind reform. The framework received the backing of the G-7 and G-20. Now, finance ministers from the G-20 are expected to sign off on an “agreement in principle” during a meeting in Venice, Italy set for next week.

Both China and India have reportedly given their blessing to the deal, eliminating the last bit of resistance from within the G-20.

Treasury Secretary Janet Yellen, who was tasked with overseeing the US-led effort, tweeted Thursday that the deal would soon put a stop to “self-defeating international tax competition, lowering our corporate tax rates only to watch other nations lower theirs in response.” Read the full thread below:

“Today is an historic day for economic diplomacy. 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. The result was a global race to the bottom:  Who could lower their corporate rate further & faster? No nation has won this race.”

“Lower tax rates have not only failed to attract new business, they’ve also deprived countries of funding for important investments like infrastructure, education, & efforts to combat the pandemic.  In the United States, this agreement will ensure that corporations shoulder a fair share of that burden.”

“Today’s agreement by 130 countries representing more than 90% of global GDP is a clear sign: the race to the bottom is one step closer to coming to an end.  In its place, America will enter a competition that we can win; one judged on the skill of our workers & the strength of our infrastructure.”

“We have a chance now to build a global & domestic tax system that lets American workers & businesses compete and win in the world economy.”

“President Biden has spoken about a “foreign policy for the middle class,” and today’s agreement is what that looks like in practice.”

While Washington and the US press celebrated the “deal”, it’s worth remembering that a small group of rogue nations haven’t joined the plan, as the OECD acknowledged in a statement. Holdouts like Bermuda and other traditional tax havens (including Ireland, which has benefited tremendously from its low corporate tax rates) are anxious about hiking taxes, worrying that joining the deal could seriously destabilize their economies.

To be sure, implementing the deal will take years, and there’s still no guarantee that it will make it to the finish line.