WASHINGTON – The Biden administration this week released an outline of its proposed changes to U.S. corporate tax policies, called the “Made in America” tax plan.
It includes a proposal to establish a global minimum tax rate on businesses, potentially bringing the U.S. fully on board with an effort that has so far been led primarily by international organizations of wealthy countries, including the G-20 and the Organization for Economic Cooperation and Development.
Here are six things you should know about a global minimum tax rate:
What is a global minimum tax rate and how many countries subscribe to one?
A global minimum tax establishes a system under which a company from a specific country will pay at least a certain percentage of its profits in taxes, regardless of where in the world those profits are being earned.
In a country that imposes a global minimum tax rate, a domestic company that moves some of its operations to a low-tax jurisdiction overseas would have to pay its home country’s government the difference between that minimum rate and whatever the firm paid on its overseas earnings.
For example, if a country with a global minimum rate of 15% is home to a company that earned profits overseas that were taxed at 5%, it would be entitled to bring the company into compliance with the minimum tax by charging it an additional 10%.
Some countries, the U.S. included, already try to capture some of the tax revenue they lose when companies shift their…