Biden, other G-20 world leaders formally endorse groundbreaking global corporate minimum tax

ROME - President Joe Biden and the other national leaders gathered for the Group of 20 summit formally endorsed a new global minimum tax on Saturday, capping months of negotiations over the groundbreaking tax accord.

The new global minimum tax of 15% aims to reverse the decades-long decline in tax rates on corporations across the world, a trend experts say has deprived governments of revenue to fund social spending programs. The deal is a key achievement for Treasury Secretary Janet Yellen, who made an international floor on corporate taxes among the top priorities of her tenure and pushed forcefully for swift action on a deal.

The plan was already endorsed by the finance ministers of each country, but its official approval by the heads of state puts added pressure on the difficult task of turning what remains an aspirational agreement into distinct legislation.

Nearly 140 countries representing more than 90 percent of total global economic output have endorsed the deal, but they each must implement the new standards in a process that could take some time.

"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," Yellen told 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 full on workers . . . this is a way to make sure that all countries in a fair way."

The tax deal includes not just a new global minimum tax but a separate - and arguably more controversial - overhaul of how multinationals are taxed when earning profits in countries where they have no physical presence. That related but distinct tax deal is intended primarily to address anger in Europe over the U.S.-based tech giants that pay little in taxes in European countries despite earning substantial sums there. Several European leaders have said they see the measures as tied together.

The new tax accord faces criticisms from conservatives who say it will stifle innovation and economic growth, as well as liberals who say it does not do enough to raise new revenue from large multinational corporations and could hurt poor nations.

Skeptics also note that key details in the plan, particularly pertaining to the part of the tax agreement related to taxing multinational tech firms, remain unresolved and that leaders could confront disagreements when bringing the plan to fruition.

Republicans have slammed both parts of the plan as fanciful thinking by an administration sacrificing part of the U.S. tax base to European rivals largely to secure a symbolic victory.

"The Europeans have no particular interest in the global minimum tax, and will in subtle ways gut it so it's effectively far less than 15%," said Douglas Holtz-Eakin, a Republican policy analyst. "The deal was: 'We'll give you some more tax base, and in exchange you'll raise taxes on yourself.' But I wonder if we'll get that deal in practice."

Still, Yellen has been adamant that something has to be done to prevent corporations from playing countries off each other to push corporate tax rates lower and lower. The average corporate tax rate globally has fallen from about 40 percent in 1980 to roughly 23 percent in 2020, according to the Tax Foundation.

In 2017, roughly 40 percent of profits earned by the world's multinational firms - or more than $700 billion - was stashed in tax havens.

The new minimum tax rate only applies to firms with more than $850 million in annual revenue and is expected to raise roughly $150 billion in additional global tax revenue every year, according to the Organisation for Economic Co-operation and Development, which brokered the agreement.