U.S. Backs Global Minimum Tax of at Least 15% to Curb Profit Shifting Overseas

The Biden administration proposed a global tax on multinational corporations of at least 15 percent in the latest round of international tax negotiations, Treasury Department officials said on Thursday, as the U.S. looks to reach a deal with countries that fear hiking their rates will deter investment.

The rate was a lower-than-expected proposal from the United States, and the Treasury Department hailed its positive reception among other countries as a breakthrough in the negotiations. The fate of the talks is closely tied to the Biden administration’s plans for overhauling the corporate tax code in the United States, and the White House is pushing to reach an international agreement this summer and pass legislation later this year.

President Biden has proposed raising the corporate tax rate in the United States to 28 percent from 21 percent, which would be higher than the rate in many other countries. A deal over a global minimum tax would better allow the United States to make the increase without putting American companies at a disadvantage or encouraging them to move operations offshore.

Treasury has been holding meetings this week with a panel of negotiators from 24 countries about the so-called global minimum tax, which would apply to multinational companies regardless of where they locate their headquarters.

“Treasury underscored that 15 percent is a floor and that discussions should continue to be ambitious and push that rate higher,” the Treasury Department said in a statement after the meetings.

The negotiations over the global minimum tax are part of a broader global fight over how to tax technology companies, and they come as the Biden administration is trying to fix provisions in the tax code that it says incentivizes moving jobs overseas. The talks have dragged on for more than two years, slowed by the recalcitrance of the Trump administration and the onslaught of the pandemic.

As part of its American Jobs Plan, the Biden administration called for doubling a tax called the global intangible low-taxed income (or GILTI) to 21 percent, which would narrow the gap between what companies pay on overseas profits and what they pay on earned income in the United States. Under the plan, the tax would be calculated on a per-country basis, which would have the effect of subjecting more income earned overseas to the tax than under the current system.

If the 15 percent global minimum tax rate is adopted, it would still leave a gap between that rate and the Biden administration’s proposed U.S. domestic rate. Treasury officials have argued that the new gap would be smaller than the current one and therefore would not diminish the competitiveness of American companies. A large delta between the global minimum tax and what U.S.-based companies face on their foreign income gives companies that are based outside of the United States an advantage.

American companies have been watching the different moving parts of the negotiations closely. Big businesses have been generally wary of the Biden administration’s tax plans.

This week, Treasury Secretary Janet L. Yellen told the U.S. Chamber of Commerce that the Biden administration’s proposals would benefit them.

“We are confident that the investments and tax proposals in the jobs plan, taken as a package, will enhance the net profitability of our corporations and improve their global competitiveness,” she said.

Immediately following her remarks, Suzanne Clark, the chief executive of the chamber, said that she disagreed.

Finalizing an agreement on the global minimum tax will not be easy, even if an agreement in principle is near.

The finance ministers from France and Germany indicated last month that they were willing to back a 21 percentrate. But countries will have to change their laws to formally make the agreement happen, and enforcement of the deal will be complicated. Ireland, which is not a member of the steering committee undertaking the negotiations through the Organization for Economic Cooperation and Development, has a 12.5 percent corporate tax rate and has expressed reservations about such an agreement. Britain’s chancellor of the Exchequer, Rishi Sunak, also expressed skepticism this week.

Manal Corwin, a former Treasury Department official in the Obama administration who now heads the Washington national tax practice at KPMG, said that other countries had been under the impression that the United States was set on a 21 percent global minimum tax, which would match the tax rate the Biden administration has proposed for U.S.-based companies’ foreign income. The fact that the U.S. is ready to negotiate from a lower rate is important, she said.

“To get a deal, it was important for the U.S. to clarify that they’re not necessarily saying 21 percent or nothing,” Ms. Corwin said.

Still, she added, the 15 percent “floor” could be too high for some countries to accept and too low to win approval from some members of Congress in the United States.

Rohit Kumar, leader of PwC’s Washington National Tax Services office, said that the reaction from Ireland and other countries to the proposal will be crucial because a tax agreement reached through the negotiations would be far from ironclad.

“Do countries actually change national law and enact it? Or is it just a political agreement where everyone is says, ‘That’s nice, but we’re not doing it?’” Mr. Kumar, a former top aid to Senator Mitch McConnell, the Senate minority leader, said. “As U.S. lawmakers are examining these proposals, that is the several trillion dollar question.”

Treasury officials said that they never insisted on the 21 percent rate, but that they believed that other countries were receptive to the idea of adopting a rate higher than 15 percent depending on the fate of the changes to the American tax system that are under consideration.

Ms. Yellen has warned that a global “race to the bottom” has been eating away at government revenues, and she has adopted a more collaborative approach to the negotiations than the Trump administration employed.

She is expected to continue talks about global tax reform with her international counterparts at the Group of 7 finance ministers meeting next month.