Spencer Platt/Getty ImagesDespite opposition from low-tax countries like Barbados, Ireland, and Hungary, the world's biggest economies agreed to make major changes to the global fiscal system.POLITICO was told by four officials that 130 countries had signed up for the agreement, which was announced shortly thereafter by the Organisation for Economic Cooperation and Development. The global tax will be applied to the 100 largest companies in the world and a minimum corporate tax rate of 15%. The minimum rate was opposed by nine countries, most of which have low corporate tax rates, the people said, speaking under anonymity.All G20 countries including France, China, the U.S. and the U.K. backed the deal and their finance ministers will approve it on July 9. The current deal does not include details such as exemptions for manufacturing or the financial sector. These details will be worked out by October.Janet Yellen, U.S. Treasury Secretary, stated in a statement that "Today is a historic day for economic diplomacy." "Today's agreement by 130 countries, representing over 90 percent of the global GDP, is a clear indication that the race to the bottom may be coming to an abrupt halt."Paolo Gentiloni (the European Commission's chief tax officer), also tweeted his approval of the deal, calling it "great news."In the final negotiations led by the Paris-based OECD, the global proposal to stop corporate giants like Amazon and Google from hiding their global earnings under low-tax regimes or tax avoidance schemes became bitterly divided on Thursday.A few countries declined to sign up for a global minimum tax threshold because they feared that these proposals would limit their ability to attract international companies to their shores, and pose a threat to their sovereignty. One official said that the other countries opposed to the threshold were Estonia, Kenya and Nigeria. The OECD statement didn't name any of the remaining countries.Unidentified Irish officials explained that they were opposed to the deal. Ireland can't sign up to a generalized language that doesn't include specific assurances about policies and issues that are important to us.These low-tax countries, which include India, Germany, and the U.K., are fighting to keep their domestic rates high despite threats from officials in other countries that they will impose the new global tax regime regardless of what the remaining holdouts do.This could mean that governments would impose the minimum global tax rate on homegrown businesses' international operations even if they are intended for low-tax countries. Officials warned that there are still many details to the proposal and that they will likely announce these issues later in the year, including how the tax overhaul will be implemented worldwide.First pillarTwo separate proposals were presented to reform the global tax system. Pillar One, originally intended only for tech giants, would have made them pay tax on their profits above a threshold in all countries they operate.Washington's April proposals were expanded to include all 100 global top digital companies with a combined annual revenue of at least $20 billion. The tax will be applied to companies with a profit margin of more than 10 percent.French officials expressed concern that Amazon's current profit margins would not allow it to be included in the new system. Negotiations could be tweaked in the final agreement. This will allow the companies' business units, such as Amazon's highly profitable Amazon Web Services or its cloud-computing provider, to be included in the pact regardless of whether the overall operations of the e-commerce giant are affected.Bruno Le Maire, French Finance Minister, said that the agreement "allows us to ensure Amazon is well within this digital taxation" and that all digital giants are included in the agreement. "We also created a carve out system, which was an important request from emerging nations to take into consideration the actual physical presence of companies in their territory and distinguish them from tax havens that are only empty shells."Second pillarPillar Two is the second proposal. It would establish a minimum corporate tax rate worldwide so multinational companies can't shop around for lower rates. This idea was strongly opposed by tax havens such as Barbados and Ireland, which are low-tax countries.To avoid this problem, officials from other countries, especially the United States, told low-tax nations that Washington had just proposed new rules to make it nearly impossible for American companies to pay tax in low-tax countries. This would also make it virtually impossible for multinational corporations to continue to pay tax in these other jurisdictions."You can create any regime you like, but we're telling ya that U.S. businesses no longer have an incentive not to operate there," stated Peter Barnes, a tax lawyer at Caplin and Drysdale. He was previously the senior international tax counsel for General Electric. "Washington is looking to others to follow it on that."Giorgio Leali contributed reporting in Paris. Shawn Pogatchnik reported from Dublin.This article has been revised.Do you want more analysis from POLITICO POLITICO Pro, our premium intelligence service for professionals, is available. Pro provides real-time intelligence, deep insight, and the breaking scoops that you need to stay one step ahead of your competition in every area, including financial services, trade, technology and cybersecurity. To request a free trial, email [email protected].
