In mid-May, the Biden Administration officially threw its support behind a minimum global corporate income tax rate of at least 15%.  The US proposal would be limited to the world’s 100 largest companies – those with revenues of over $20 billion.  The proposal would not depend on the company’s nationality (the US has made clear that it would not support any proposals that discriminate against US multinationals) and, since it would apply to digital services companies as well as to those selling tangible goods, would not be specific to any one sector.

Air in the OECD Sails?

OECD have been negotiating a new global taxation agreement to tackle ‘base erosion and profit shifting’.  Those negotiations are based around two Pillars. Pillar 1 would allow destination countries to impose tax on multinationals selling goods or providing services within their borders, rather than limiting the ability to tax to the countries in which such companies are head-quartered or have a physical presence (this Pillar is perceived to have particular relevance to digital service companies). Pillar 2 would introduce a global minimum corporate income tax rate, which would be implemented through a combination of controlled foreign corporation rules and undertaxed payment rules.

Why the Damascene Conversion?

Under the previous Administration, US support for OECD efforts was mixed at best and driven, in large part, by a desire to prevent digital service taxes (DST), which were perceived to discriminate against US multinationals.  DST proposals remain of concern to the Biden Administration, but the US’ renewed robust support for global minimum taxes adds momentum to the OECD effort.  An agreed minimum global corporation tax level would help level the playing field for US headquartered multinationals if the US corporate income tax rate were increased above the current 21% rate (to 28% as proposed to pay for the American Jobs Plan).

Initial Opposition

Whilst there was general support (including from the EU) for a corporation minimum tax of 15%, the US’ suggestion was above the OECD Pillar 2 rate which had been under consideration (apparently 12.5%).  Many countries view their ability to set a lower corporation tax rate as a key element of their economic attractiveness for international investors.

Of particular note, is Ireland’s current corporation tax rate of 12.5%.  Dublin argues that smaller countries (including Belgium, the NL and Luxembourg) need to be able to use tax policy as a legitimate policy lever to compensate for advantages of scale, resources and location enjoyed by larger countries – if larger countries struggle to compete, they should lower their tax rates, rather than forcing smaller countries to raise theirs.  Reforms to Pillars 1 and 2 would force Ireland to consider how to manage a potential €2 billion p.a reduction in corporation tax collections and how to reform its industrial strategy to offer international companies a reason to continue to base themselves there, beyond a low corporation tax rate.

But even a 15% rate would remain internationally competitive – lower than the US’ current 21% corporate income tax rate for its global multinationals (which itself is double the US’ current 10.5% minimum tax on American companies’ global intangible low-tax income – GILTI) and far below the administration’s new proposed US rate of 28%.  And the UK (traditionally Ireland’s closest competitor for US corporate investment), facing the double impact of leaving the EU and suffering the largest Coronavirus economic hit of any G7 country, has already announced plans to increase its corporation tax rate to 25%.


Although the US minimum 15% proposal has changed the mood (Japan, Australia, the EU and some of the larger individual Members State have welcomed the threshold), headwinds remain.  For example, any global agreement on taxation would need the support of the EU.  Implementing Directives involving tax would require unanimity and the EU’s record is not strong in this area – attempts to unify what companies are taxed on,  have been stalled since 2011…

Furthermore, while reaching agreement on Pillar 2 now may be possible, there is no apparent solution to the contentious Pillar 1 question about where companies (in particular digital service companies) will be required to pay taxes.  France’s Finance Minister commented on 26 May, “one condition is to have all big [important] digital companies, being included in the scope of the tax” – US acceptance of any changes in this area is conditional on an insistence that the approach must not discriminate against US multinationals.

For its part, the EU has indicated that it does not see an OECD agreement as an impediment to its proposed Digital Levy and plans to press ahead with a Proposal later this month; and a number of non-EU countries have already imposed, or plan to introduce a Digital Service Tax (including the UK, Brazil, Indonesia, India and Turkey).

Agreement on the Horizon?

Notwithstanding these potential obstacles, G7 Finance Ministers apparently made good progress in discussions at the end of May and aim to announce a common position during their formal meeting on 4-5 June.  That would enable G7 leaders to sign off a deal at their Summit in mid-June.  That would, in turn, put pressure on the G20 to agree to the plan in their meeting at the end of July – although many commentators view October as a more realistic timetable.

On balance, despite the objections, it seems likely that the US proposal of a minimum global corporation tax rate of 15% will be accepted at the G20 Summit.  If so, it will be seen as an indication that the international community is able to work together and find solutions to complex commercial issues.  If the proposal is accepted, it will have implications for multinationals (which may face higher tax bills) and for countries (which may see their competitive tax-rate advantage eroded).

Covington’s public policy teams will be following these developments and would be delighted to speak to clients who may have concerns or questions about them.