A global minimum tax on firms is finally taking shape

More than 130 countries struck a historic deal in 2021 that sought to change the way big companies are taxed. This agreement promised to alter how countries divvy up the right to tax multinational companies’ profits. It also decreed that no big firm should pay tax at a rate lower than 15%, no matter where it books its profits (an idea known as the “global minimum tax”). But the fanfare underplayed quite how much of the nitty-gritty was still to be worked out. In 2024, however, some elements of this big deal will at last start to have an impact.

The changes that are coming soonest relate to the global minimum tax. In 2024 laws that bring it closer will go into force in Britain, the eu, Japan and elsewhere. Most of these places already tax companies more than 15%. But from now on they will also start collecting “top-up” taxes from big firms that use legal loopholes to shift profits to places such as Caribbean tax havens which charge lower rates. The idea is to halt a “race to the bottom” in which for years governments have slashed corporate-tax rates to attract investment. Though at first only a handful of big countries will enforce the minimum tax, more will follow.

Even as plans for a global minimum tax move forward in 2024, however, another important part of the big international tax deal could fall apart. For years governments have complained that fast-rising sales of digital products and services have allowed big foreign firms to make a mint from their citizens without setting up local outfits they can tax. To tackle this, the agreement in 2021 granted governments a firmer right to tax some of the profits that the world’s largest companies earn from selling stuff in their markets. In exchange countries agreed to drop plans to impose new taxes of their own on tech giants, which would make doing business across borders more complex.

The problem is that most companies affected by these provisions are American—and America’s Congress is unwilling to grant foreigners more rights to tax its firms (even though Joe Biden’s administration was instrumental in arranging the global deal). If this remains the case by the end of 2024, some 30 countries may press ahead with new tariffs. That could prompt angry American politicians to hit back with levies of their own. As 2024 slides to a close, efforts to avoid a costly skirmish will grow more fraught. ■

Mark Johnson, International correspondent, The Economist