Leaders have expressed “broad support” for a landmark deal to establish a 15% global minimum corporate tax, delivering President Joe Biden a major win on the first day of his first Group of 20 Summit as commander-in-chief.
The tax aims at deterring multinational countries from using clever accounting to elude taxes by using low-rate havens, ending the so-called "race to the bottom," which is the practice of reducing tax rates in an attempt to undercut competition and lure businesses from one country to another.
Leaders spoke on the proposal during the opening session Saturday of the summit, said officials from host country Italy.
"We reached a historic agreement for a fairer and more effective international tax system," Italian Prime Minister Mario Draghi, the head of this year's G20 meeting said, adding: "These results are a powerful reminder of what we can achieve together."
"From the pandemic to climate change to fair and equitable taxation, going it alone is simply not an option," Draghi continued. "We must do all we can to overcome our differences. And we must rekindle the spirit that led to the creation of this group."
During Saturday's session, every leader endorsed the global minimum tax, which the Organization for Economic Cooperation and Development (OECD) estimates would raise $150 billion globally each year. A Biden administration official estimates it would lead to an extra $60 billion in revenue annually in the U.S. alone.
"The President emphasized the importance of this historic deal during his intervention," a White House official said of President Biden's remarks. "The President also mentioned that while we don't see eye to eye on every issue, we can tackle shared interests."
Biden also "underscored his commitment to ending the global pandemic and securing an inclusive global economic recovery, including by supporting developing countries through debt relief," per the official.
The president reminded leaders "that new pandemics can arise any time so it is important that we strengthen global health systems and do more to create the global health security infrastructure to make sure we are prepared against the next pandemic," the official added.
Following formal approval, which will be reflected in Sunday’s closing statement, countries would enact the minimum tax on their own. A key question in the United States is whether Congress will pass legislation to comply, since the U.S. is home to 28% of the world’s 2,000 largest multinational corporations. The Biden administration is aiming to pass the global minimum tax as part of the Build Back Better framework, the president's sweeping social spending and climate change bill, which is in end-stage negotiations among Congressional Democrats.
The idea is that headquarters countries would top up a company’s tax to 15% if the firm’s profits went undertaxed in another country.
"What it will provide is a level playing field globally where companies and countries can compete, on the basis of their innovative ideas, fundamentals, the quality of workforce and their business environments," Treasury Secretary Janet Yellen said on CNBC on Friday. "Countries around the globe have decided that to finance the public infrastructure investments that they need, to invest in their people, and not to have all of the burden of raising taxes fall on workers."
"This is a way to make sure that all countries in a fair way can collect more," she added.
In today’s digital and global economy profits can come from intangibles such as copyrights and trademarks, and can thus be easily shifted to countries offering near-zero taxes in hopes of attracting revenue they otherwise wouldn’t have.
"In our judgment, this is more than just a tax deal," a senior administration official said. "It's a reshaping of the rules of the global economy."
The Associated Press contributed to this report.